Prices, Profits, and Preference Dependence

Chen, Yongmin and Riordan, Michael (2014): Prices, Profits, and Preference Dependence. Forthcoming in: Journal of Industrial Economics

Abstract

We develop a new approach to discrete choice demand for differentiated products, using copulas to separate the marginal distribution of consumer values for product varieties from their dependence relationship, and apply it to the issue of how preference dependence affects market outcomes in symmetric multiproduct industries. We show that greater dependence lowers prices and profits under certain conditions, suggesting that preference dependence is a distinct indicator of product differentiation. We also find new sufficient conditions for the symmetric multiproduct monopoly and the symmetric single-product oligopoly prices to be above or below the single-product monopoly price.

• Item Type: MPRA Paper
• Language: English
• Keywords: Product differentiation, discrete choice, copula, multiproduct industries.
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance

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