Niche-product offering in the spokes model

Abstract

We use a spokes model to analyze firms’ incentives when facing the choices of general-purpose products and niche products. Products at or near the end of the spokes are niche products, while products near the origin are more standardized products that cater to the taste of many consumers. Our results indicate that although a monopolist always offers the general-purpose product, if a firm anticipates entry, it may choose to stake claim to a niche market. For low transportation costs or when consumers do not have strong brand preferences, the early entrant chooses the general-purpose product. But this equilibrium is characterized by aggressive pricing behavior. Show more