Targeted Product Design
- American Economic Journal: Microeconomics (Forthcoming)
We propose an intuitive representation of product design in which
firms locate inside a circle and consumers in its outer circumference.
Designs trade-off horizontal and vertical transport costs. Our setting
encompasses all linear demand rotations. Firms with lower quality
and/or higher marginal costs choose niche designs that cater to specific
consumers at the expense of alienating the rest. Firms choose intermediate
designs or more polarized ones instead depending on the convexity
of the vertical transport cost. We examine such design choices
in monopoly, duopoly, and monopolistic competition settings.
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