The Provision of Convenience and Variety by the Market

The Provision of Convenience and Variety by the Market

The RAND Journal of Economics. November
2015, Vol. 46, Issue 3, Pages 480-498

Consumers commonly face purchasing costs, for example, travel or wait time, that are fixed to quantity but increase with variety. This article investigates the impact of such costs on the demand and supply of variety. Purchasing costs limit demand for variety like prices limit demand for quantity. When demand for variety is low, manufacturers generally invest substantially in lowering purchasing costs, to attract consumers. In the monopolistic competition free-entry equilibrium, providing convenience increases the demand for variety, but its costs reduce supply. The desirability of nonprice competition in convenience and its implications for variety and market concentration are discussed.