Abstract:
In this paper, we take a first step toward exploring empirically the product
assortment strategies of oligopolistic firms. O=
ur
starting point is a discrete-choice demand model for differentiated product=
s. We
incorporate the demand model into an equilibrium supply model, in which fir=
ms
compete by first choosing which products to offer and then by setting price=
s.
We show how modeling joint product assortment and pricing decisions enriches
standard product choice models by allowing insights into how demand charact=
eristics
affect firms' product offerings in a competitive environment. We furthermore
demonstrate that incorporating endogenous product choice into demand models=
is
essential for policy simulations (e.g., mergers) as it entails at times dra=
matically
different welfare assessments than the common assumption that product
assortments are exogenous.