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This paper studies centralized and decentralized assortment planning problems for a product category with heterogenous product types from two brands. We model consumer choices in such a product category by two hierarchical choice models: a brand-primary choice model in which consumers choose a brand first, then a product type in the chosen brand, and a type-primary choice model in which consumers choose a product type first, then a brand within that product type. We find that the optimal assortments under centralized management and the competitive assortments under decentralized management have similar properties within the same consumer choice model, but have quite distinctive properties across different consumer choice models. Specifically, with the brand-primary choice model, both the optimal and the competitive assortments for each brand consist of the most popular product types from the brand. With the type-primary choice model, the optimal and the competitive assortments for each brand may not always consist of the most popular product types of the brand. However, the product types that are offered by at least one brand consist of a set of the most popular product types. In addition, the product types that are offered by both brands also consist of a (possibly smaller) set of the most popular product types. These properties of the optimal and the competitive assortments can be used as effective guidelines for managers to identify the best assortments, and to rule out non-optimal assortments. Our results imply that, in order to be able to o¤er the right set of products, category and/or brand managers should pay close attention to identify what hierarchical process consumers commonly follow to make purchase decisions in product categories they manage.

The Internet has made consumer search easier, with consequences for prices, industry structure and the kinds of products o¤ered. We explore these consequences in a rich but tractable model that allows for strategic design choices. A polarized market structure results, where some …rms choose designs aiming for broad-based audiences, while others target narrow niches. Such an industry structure can arise even when all …rms and consumers are ex-ante identical. We analyze the e¤ect of reduced search costs and …nd results consistent with the reported prevalence of niche goods and the long-tail and superstar phenomena.

This paper presents a dynamic investment game in which firms that are initially identical develop assets which are specialized to different market segments. The model assumes there are increasing returns to investment in a segment, for example, due to word-of-mouth or learning curve effects. In equilibrium, firms that are only slightly different focus all of their investment in different segments, causing small random differences to expand into large permanent differences. Even though firms do not cooperate and do not make threats to punish each other, in the long run they divide the market, reaching the same outcome that they would if they cooperated to maximize joint profits. I am grateful to my advisor, Birger Wernerfelt, for his support and guidance. Helpful comments

Commercial open source software (COSS) products—privately developed software based on publicly available source code—represent a rapidly growing, multi-billion dollar market. A unique aspect of competition in the COSS market is that many open source licenses require firms to make certain enhancements public, creating an incentive for firms to free-ride on the contributions of others. This practice raises a number of puzzling issues. First, why should a firm further develop a product if competitors can freely appropriate these contributions? Second, how does a market based on freeriding produce products that effectively compete with similar products from proprietary software firms? Third, from a public policy perspective, does the mandatory sharing of enhancements raise or lower consumer surplus? We develop a two-sided model of competition between COSS firms to address these issues. Our model consists of (1) two firms competing in a vertically differentiated market, where product quality is a mix of public and private components, and (2) a market for developers whom firms hire after observing signals of their contributions to open source. We demonstrate that free-riding behavior is supported in equilibrium, that a COSS market can produce better products than a traditional software market, and that free-riding can actually increase profits and consumer surplus. The authors would like to thank Anthony Dukes, Oded Koenigsberg, seminar participants at UT Dallas, the

When selling a product line a firm has to consider the costs of communicating about the different products to the consumers. This may affect the product line design in general, and which products or services are offered, in particular. The problem is that firms have to communicate to consumers, possibly through advertising, in order to make them consider buying the products that firms are selling. This results in the firm offering a smaller number of products than the optimal number of products when advertising is costless. This effect is greater the greater the extent of consumer confusion about the advertising messages, and is reduced by a greater ability to target advertising. When offering vertically differentiated products (second degree price discrimination) it is optimal, under general conditions, to advertise so that one has a greater proportion of sales of the lower quality product than if advertising were costless. This also generates that the firm charges a lower price for the high quality product and offers a higher quality of the low quality product than it would if advertising were costless.

The paper is based on an essay from the first author’s dissertation at the Yale School of Management. We thank Ahmed Khwaja, Jiwoong Shin and participants at the Yale Ph.D. student workshop for their comments. Does Reducing Spatial Differentiation Increase Product Differentiation? Effects of Zoning on Retail Entry and Format Variety This paper investigates the impact of spatial zoning restrictions on retail market outcomes. We estimate a structural model of entry, location and format choice across a large number of markets in the presence of zoning restrictions. The paper contributes to the literature in three ways: First, the paper demonstrates that estimates of factors affecting market potential and competitive intensity in the extant literature on entry and location choice that do not account for zoning restrictions are significantly biased. Second, the cross-market variations in zoning regulations helps us test and provide evidence for the theory that constraints on spatial differentiation will lead to greater product differentiation. Finally, we provide qualitative insight on how zoning impacts retail entry and format variety; in particular we evaluate the impact of prototypical zoning arrangements such as “centralized, ” “neighborhood, ” and

studying firms ’ decision-making on marketing mix variables. Specifically, the first essay (Chapter 2) studies the effects of distribution channels on firms ’ advertising content decision. In many markets, consumers may not have full information of product features and prices when they shop. While consumers can search to acquire such information, manufacturers and retailers often advertise price, product, or both types of information to help resolve consumers ’ uncertainty. This chapter studies manufacturers ’ and retailers ’ advertising content decisions in either a centralized channel or a decentralized channel, in a market where advertising affects consumers ’ search behaviors and purchase decisions. I show that in a decentralized channel, advertising may include more information than in a centralized channel. Specifically, when a retailer in a decentralized channel makes its advertising decision before the manufacturer and the retailer decide on prices, it prefers more price-product advertising than in a centralized channel; otherwise, it prefers more price-only advertising and

We explore how internet browsing behavior varies between mobile phones and personal computers. Smaller screen sizes on mobile phones increase the cost to the user of reading information. A wider range of offline locations for mobile internet usage suggests that local activities are particularly important. Using data on user behavior at a (Twitter-like) microblogging service, we exploit exogenous variation in the ranking mechanism of posts to identify user search costs. We show (1) Search costs related to primacy effects are higher on mobile phones and (2) The benefit of searching for geographically close matches is higher on mobile phones. Thus, the mobile internet is somewhat less “internet-like”: search costs are higher and distance matters more. Our results suggest a possible exception: while primacy effect-related search costs are higher in a mobile phone, the cost of acquiring timely information appears to be lower on a mobile phone than on a PC.