Top publication by Øystein Foros

16 March 2017 16:09

(updated: 26 April 2017 16:12)

Top publication by Øystein Foros

The article "Product Functionality, Competititon, and Multi-Purchasing" has been published in International Economic Review.

International Economic Review is on level 4 in the ABS Academic Journal Guide.

Anderson, Simon P., Øystein Foros, and Hans Jarle Kind: Product Functionality, Competititon, and Multi-Purchasing, International Economic Review, 2017, 58(1), 183-210.

Abstract

The more functionalities a good offers, the greater is its perceived quality. Equilibrium prices in standard spatial competition models depend solely on quality differences. We assume that new functionalities are more appreciated the closer a product is to a consumer's ideal variety. Prices are then increasing in functionality levels.

Furthermore, we endogenize whether consumers buy only one of two varieties (single-purchase) or both (multipurchase). Under multipurchase, there might be a hump-shaped relationship between equilibrium prices and functionality levels. Therefore, it could be optimal for each supplier to sacrifice sales and set prices so high that multipurchase is eliminated.