Researching overall money transfers amongst the solution as well as the labeling phase is more straightforward as the age fashion

Presenting leads to standard notation to possess ease of reference, we get, (3) S l a-b e l ? S an excellent l t e roentgen ? step 1 step 3 ( 2 t c t + t f t ) step 1 ? 1 step 3 2 t c t + t f t t c t + t f t ? F (3)

Area of the difference in the complete riches transfers in phase ‘s the traditional company’s relocate to a c t = 1 , implying market display of one having Legs items in the new brands stage. On the tags phase, both businesses have Feet activities from the Ft item’s cost of the alternative stage step 1 step three ( 2 t c t + t f t ) , the initial the main formula. The difference in the wealth transmits therefore numbers to help you a comparison regarding industry shares from Legs affairs between them levels, that’s 1 ? step one step 3 2 t c t + t f t t c t + t f t > 0, next region in (3). Yet not, which positive effect of enhanced market share to the wide range transfers will be end up being as compared to more fixed cost F coming together when a couple businesses give Ft points. Which inefficiency in the market can not be averted unless of course both businesses manage getting one. Particularly a dominance condition would yet not lead to almost every other inefficiencies. Note that (3) becomes t / 2 ? F ? 0 to possess symmetric psychological length will cost you, implying when firms’ payouts was self-confident, money transmits improve when swinging about choice phase with the brands phase.

Jaffee and you will Howard 2010 )

At exactly the same time, i compare the difference inside the wealth transfers for every single agency, adding to the brand new dialogue of dilution out-of Feet (e.g. Perform Legs enterprises actually bring smaller wide range transfers when the race gets more critical about Feet business? Evaluating S f t a great l t elizabeth r and you can S f t l a-b age l , i derive: (4) S f t a great l t age r ? S f t l a-b age l ? t c t ? t f t (4)

This can be together with apparent for the (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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