To present contributes to general notation to have simple source, we become, (3) S l a-b e l ? S a beneficial l t e roentgen ? step one step three ( 2 t c t + t f t ) step 1 ? step 1 step three 2 t c t + t f t t c t + t f t ? F (3)
Part of the difference between the complete wide range transfers in levels is the conventional company’s proceed to a c t = 1 , implying an industry share of just one to possess Foot items in the new labels stage. On labels phase, one another businesses also have Ft factors during the Feet product’s cost of the exact opposite stage step one step 3 ( 2 t c t + t f t ) , the original the main equation. The difference inside the money transfers hence number to an assessment off field offers of Base facts between the two phases, that is step one ? step one step 3 dos t c t + t f t t c t + t f t > 0, the following region inside (3). not, so it positive aftereffect of improved market share to the wide range transfers is to getting compared to the a lot more fixed costs F upcoming with each other when several enterprises give Legs things. So it inefficiency in the business cannot be eliminated unless of course one another companies carry out getting you to definitely. Including a dominance standing carry out but not end in other inefficiencies. Remember that (3) gets t babel / 2 ? F ? 0 to possess shaped psychological distance costs, implying when firms’ earnings try confident, riches transmits increase whenever swinging about choice phase with the brands phase.
Jaffee and you may Howard 2010 )
While doing so, we compare the distinctions when you look at the money transmits for every single organization, causing the fresh new conversation of your dilution off Base (elizabeth.grams. Would Legs companies indeed bring smaller wealth transmits in the event that race will get more significant regarding the Foot field? Researching S f t a good l t e roentgen and you can S f t l a b age l , we derive: (4) S f t good l t elizabeth roentgen ? S f t l a-b e l ? t c t ? t f t (4)
This is exactly and additionally obvious within 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.