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, Competition, and Multi-Purchasing, International Economic Review, 2017, 58(1), 183-210.
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.