Marketing Papers

Document Type

Technical Report

Date of this Version

6-2010

Publication Source

Management Science

Volume

56

Issue

6

Start Page

949

Last Page

961

DOI

10.1287/mnsc.1100.1158

Abstract

We study competitive positioning and pricing strategies in markets where consumers seek variety. Variety seeking behavior is modeled as a decrease in the willingness to pay for the product purchased on the previous purchase occasion. Using a three-stage Hotelling-type model, we show that the presence of variety seeking consumers reduces product differentiation offered in equilibrium, thereby explaining some otherwise counterintuitive findings in empirical research. We find that firms charge higher prices in Period 1 and lower prices in Period 2. The lower price in Period 2 represents the price incentive that firms need to offer to prevent the variety seeking consumers from switching. Furthermore, we find that the observed switching in a market may not fully capture the true magnitude of the underlying variety seeking tendencies among consumers. Finally, we show that the presence of variety seeking consumers leads to lower firm profits and a higher consumer surplus. Surplus increases for variety seeking consumers as well as regular consumers. Therefore, the presence of variety seeking consumers benefits everyone in the market.

Copyright/Permission Statement

Originally published in Management Science © 2010 INFORMS

This is a pre-publication version. The final version is available at http://dx.doi.org/10.1287/mnsc.1100.1158

Keywords

variety seeking, positioning, pricing, differentiation, hotelling models

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Date Posted: 15 June 2018

This document has been peer reviewed.