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Product Line Design with Limited Commitment (with Vasiliki Skreta)

Microeconomics Seminar 2020-2021
joint with the Département de sciences économiques, Université de Montréal

Organizer : Sean Horan (U. of Montreal)

* Invitation only. Please contact the organizer if you would like access.

 
 


 
RÉSUMÉ
 : We consider a setting in which a firm cannot only choose prices it can also optimally design the degree of product personalization. The firm conditions future terms of trade on the history of purchases which now include a variety choice. Controlling the degree of product personalization provides the firm an additional tool to curb ratcheting forces arising from consumers’ awareness of being price discriminated. Indeed, we find that the firm engages in strategic elimination of product varieties. Doing so gives commitment power to the firm: By ‘pooling’ consumers with different tastes to the same variety the firm commits not to learn their tastes. Interestingly, however, in some cases the firm optimally designs fully revealing product menus for low and very high valuations, while it pools very low and intermediate ones.

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