Electronic Resource
Oxford, UK
:
Blackwell Publishing Ltd
Journal of economics & management strategy
5 (1996), S. 0
ISSN:
1530-9134
Source:
Blackwell Publishing Journal Backfiles 1879-2005
Topics:
Economics
Notes:
It is generally believed that industries with greater product differentiation have higher rates of return. This paper shows that this effect breaks down in the presence of firm-specific cost shocks. Greater substitutability in products generates two opposing effects: (1) it allows a larger increase in demand when a firm has a favorable cost shock, which more than compensates for the reduction in demand when it has an unfavorable cost shock, and (2) it results in more intense price competition. These two countervailing forces result in industry profit being highest in markets with a moderate degree of product differentiation.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1111/j.1430-9134.1996.00175.x
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