Resource title

Questioning conventional wisdom about competition in differentiated markets

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Managerial texts are full of conventional wisdom about competitive markets. Examples of such wisdom include the following ideas: a) differentiation is a strategic imperative for firms to be successful, b) premium pricing in a market with low levels of differentiation is often evidence of collusive behaviour, and c) the viability of a firm is seriously threatened when a competitor is significantly better at reaching and communicating with potential consumers. These ideas are based on analysis where consumers are assumed to have complete and accurate information about the important alternatives in a category. The objective of this paper is to demonstrate the fallibility of these ideas in a very general context. The reality of most small-ticket consumer categories is that consumers are not fully informed about all the alternatives in a category. This is because the majority of information for small-ticket purchases comes from advertising. Not all potential consumers are exposed to advertising from every brand. By relaxing the simple assumption that consumers are fully informed, the author shows that the three ideas cited above are frequently incorrect.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2002/2002-132.pdf

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Copyright INSEAD. All rights reserved