Positioning and Pricing in a Variety Seeking Market

We study competitive positioning and pricing strategies in markets where consumers seek variety. Variety seeking behavior is modeled as an increase in the willingness-to-pay for the product not 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. 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. Non-variety seeking consumers also gain from the presence of variety seeking consumers.

• Type: Journal
• Year: 2010
• Where: MANSCI
• Authors: S. Sajeesh, Jagmohan S. Raju
• Keywords: Lower firm Profits, MANSCI 2010, Market, Stage Hotelling Type