The Provision of Convenience and Variety by the Market
41 Pages Posted: 16 Sep 2013 Last revised: 20 Jan 2014
Date Written: January 20, 2014
Abstract
Consumers commonly face purchasing costs, e.g., travel- or wait-time, that are fixed to quantity but increase with variety. This article investigates the impact of such costs on demand and supply of variety. Purchasing costs limit demand for variety like prices limit demand for quantity. When demand for variety is low relative to supply, manufacturers compete strongly, even when the products they produce are highly differentiated. They generally invest substantially in providing convenience, lowering purchasing costs, to attract consumers. In the free-entry equilibrium, providing convenience increases the demand for variety, but its costs reduce supply. Firms offer more convenience in larger markets than in smaller ones. The optimality of competition in convenience and its implications for variety and market concentration are discussed.
Keywords: variety, convenience, marketing, trade
JEL Classification: D11, L1, M3
Suggested Citation: Suggested Citation
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