Product Differentiation, Competitive Toughness, and Intertemporal Substitution

Abstract

Standard measures of competitive toughness fail to capture the fact that, as consumers optimize intertemporally, firms operating today compete with (as yet non‐existent) businesses, which will be started tomorrow. We develop a two‐tier constant elasticity of substitution (CES) model of dynamic monopolistic competition in which the impact of product differentiation on the market outcome depends crucially on the elasticity of intertemporal substitution (EIS). The degree of product differentiation per se fails to serve as a meaningful indicator of competitive toughness: what matters is its cross‐effect with EIS. We also extend the model to the case of non‐CES preferences in order to capture variable mark‐ups.

Research on the Influence of Bounded Rationality and Product Differentiation on the Stability of Steel Industry Market

“…Main theory Shaked and Sutton [7] Product differentiation + three-stage game model Chang [8] Product differentiation + collusion Goldberg [9] Product differentiation + oligopoly competition Zhang et al [10] Product differentiation + two-stage stochastic programming model Zhao and Du [11] Product differentiation + heterogeneous expectations Meng et al [12] Product differentiation + horizontally competitive + carbon tax Li and Chen [13], Raza and Govindaluri [14] Product differentiation + supply chain Ivanova and Ushchev [15] Product differentiation + CES model…”