Niche products, generic products, and consumer search

Abstract

We endogenize product design in a model of sequential search with random firm-consumer match value à la Wolinsky (1986) and Anderson and Renault (1999). We focus on a product design choice by which a firm can control the dispersion of consumer valuations for its product; we interpret low dispersion products as 'generic' and high dispersion products as 'nichy.' Equilibrium product design depends on a feedback loop: when reservation utility is high (low), the marginal customer's match improves (worsens) with more nichy products, encouraging high (low) differentiation by firms. In turn, when firms offer more nichy products, this induces more intense search; depending on search costs, this could raise or lower consumers' reservation utility. Remarkably, when the match distribution satisfies a hazard rate condition, firm and consumer interests align: equilibrium product design always adjusts to the level that maximizes utility. When this condition is not met, either multiple equilibria (one nichy, the other generic) or one asymmetric equilibrium (generic and nichy firms coexist) can arise; we argue that the former is more likely for common specifications of consumer preferences.

Product Quality and Consumer Search

“…Following Johnson and Myatt (2006) in that different product designs induce demand rotations, they show that low-quality firms choose niche designs, only appealing to a few, while high-quality firms go for broad designs, appealing to most. Larson (2013) studies the efficiency of product designs in a similar model to that in Bar-Isaac, Caruana and Cuñat (2012), where product designs induce mean-preserving spreads of the match value distribution. He shows that when search costs are low, the market chooses maximally dispersed utility distributions, and this is efficient.…”

“…Finally, Moraga-González and Petrikaitė (2013) study firms' incentives to merge and the aggregate implications of mergers Rhodes and Zhou (2019). also study firms' incentives to merge and retail various products, but in a setting where consumers buy multiple products.6 AsBar-Isaac, Caruana, and Cuñat (2012) andLarson (2013) argue, in the absence of common factors influencing firms' decisions, with (infinitely many) firms that pick price and quality independently, it is reasonable to expect that a consumer cannot infer much about the deals available at other firms upon observing a deviation at one of the firms.…”

Construction and Empirical Study of Social Business Model on Niche Products

“…However, Larson [6] defines the lowly dispersed products as general products and the high dispersion product as niche products (Nathan, 2011). Niche products' research mainly involves to the long tail theory [7], which can be expressed as that the creation of 80% of its sales is derived from the first 20% products in the Pareto's Principle or the "80/20" Rule [1].…”

“…Long Tail theory refers to that in the current personalized era, some products' sales curves present the change mode of "power curve", of which the "head" portion present popular products and the unpopular products constitute the "long tail" followed behind the "head". The long tail has made a good complement to the Pareto's "80/20" rule [8].However, Larson [6] believe that a balanced product design exists a feedback loop, within which the marginal degree of matching with consumers will be advanced by the appearance of niche products when the reservation utility is high, and vice versa. At the same time, vendors will synthetically weigh different product costs as well as strategies (avoiding price wars, etc.)…”

“…At the same time, vendors will synthetically weigh different product costs as well as strategies (avoiding price wars, etc.) and select different product line relatively [6]. Harwin [9]deems that the model design for niche products depends on further subdividing for certain products .…”