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Evaluating total wide range transmits amongst the choice and the labeling phase is far more simple because elizabeth style

Evaluating total wide range transmits amongst the choice and the labeling phase is far more simple because elizabeth style

To provide results in general notation to possess easy site, we have, (3) S l a b elizabeth l ? S a great l t elizabeth roentgen ? 1 step 3 ( dos t c t + t f t ) step 1 ? step 1 3 dos t c t + t f t t c t + t f t ? F (3)

The main difference between the complete riches transmits in both phase ‘s the traditional company’s move to a-c t = step 1 , implying a market display of one having Foot products in the fresh labeling phase. About tags stage, both enterprises supply Legs points in the Foot product’s cost of the alternative phase 1 step three ( dos t c t + t f t ) , the original area of the formula. The difference during the money transfers hence numbers so you can an assessment of market shares of Foot things between the two stages, which is step 1 ? step 1 3 dos t c t + t f t t c t + t f t > 0, the following part during the (3). Although not, it self-confident effect of increased market share with the riches transfers is always to be compared to the most repaired pricing F future along when several enterprises give Foot factors. It inefficiency in the market can not be eliminated until each other agencies would getting that. Such as a monopoly standing manage not bring about most other inefficiencies. Keep in mind that alua (3) gets t / 2 ? F ? 0 for shaped psychological distance costs, implying when firms’ earnings is confident, riches transfers increase whenever moving on choice stage with the labeling phase.

Jaffee and you can Howard 2010 )

While doing so, i contrast the distinctions into the wealth transfers each firm, leading to the new conversation of dilution out of Ft (e.g. Do Foot firms indeed bring smaller wealth transfers when the battle will get more important throughout the Base business? Contrasting S f t a l t age roentgen and you may S f t l a b age l , i get: (4) S f t a great l t age roentgen ? S f t l a-b e l ? t c t ? t f t (4)

This is exactly and additionally obvious in (3)

The intuition behind (4) is as follows. As soon as t c t > t f t the FT firm’s market share in the alternative phase is larger than FT’s market share of 1 / 2 in the labeling phase. The higher the consumers’ psychological fairness costs regarding the conventional product, the more attractive the FT product becomes for consumers. The higher market share results in larger profits for the FT firm, making S f t a l t e r larger in comparison to wealth transfers in the labeling phase. Likewise, when t c t < t f t , the FT firm's market share in the alternative phase is smaller than in the FT labeling phase, resulting in lower wealth transfers in the alternative phase. For the conventional firm these considerations do not matter: as it generated zero wealth transfers in the alternative phase, it obviously transfers more in the labeling phase.

Also, the effect on average wealth transfers, the wealth transfers per product sold, add to the discussion on dilution. The conventional firm’s wealth transfers per product sold increase, while for the FT firm we find s ? f t a l t e r ? s ? f t l a b e l ? t c t ? t f t , due to the interplay of fixed costs and FT market shares. As in the alternative phase, the FT firm’s market share is larger (smaller) when t c t > ( < ) t f t , F is spread over more (less) products and average wealth transfers increase (decrease) for the FT firm. As FT market shares were relatively small, it is likely that the labeling phase thus results in higher average wealth transfers for the FT firm. Furthermore, it indicates a more efficient provision of wealth transfers by the FT firm.

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