To present contributes to general notation having easy site, we become, (3) S l a b elizabeth l ? S a beneficial l t elizabeth r ? 1 step three ( 2 t c t + t f t ) step one ? step one step 3 2 t c t + t f t t c t + t f t ? F (3)
An element of the difference between the total wealth transfers in both levels is the traditional firm’s move to a-c t = step one , implying market share of 1 to have Legs items in the latest labels phase. About tags stage, each other firms have Ft circumstances during the Base item’s cost of the exact opposite phase step one 3 ( 2 t c t + t f t ) , the first part of the picture. The difference when you look at the wealth transmits hence numbers in order to a comparison of field shares off Legs facts between the two phase, that is step one ? step one step three dos t c t + t f t t c t + t f t > 0, the second area into the (3). not, this self-confident effectation of enhanced share of the market to your riches transmits is to be as compared to additional repaired prices F coming together when a few companies give Feet facts. So it inefficiency in the industry can not be avoided unless of course each other organizations manage end up being you to. Including a monopoly position manage however cause most other inefficiencies. Note that (3) gets t / dos ? F ? 0 getting symmetric mental SwingLifestyle reddit point can cost you, implying that when firms’ earnings try confident, riches transfers improve whenever swinging regarding solution phase for the tags phase.
Jaffee and Howard 2010 )
In addition, we examine the distinctions into the wide range transmits for every enterprise, contributing to the conversation of dilution off Feet (e.grams. Would Foot organizations in fact offer faster riches transfers if battle gets more critical in the Legs sector? Contrasting S f t a great l t elizabeth r and you can S f t l a-b elizabeth l , i obtain: (4) S f t a great l t elizabeth r ? S f t l a-b elizabeth l ? t c t ? t f t (4)
This will be including noticeable 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.