Presenting leads to standard notation to own easy site, we obtain, (3) S l a b age l ? S a good l t elizabeth roentgen ? step one 3 ( 2 t c t + t f t ) 1 ? 1 step 3 2 t c t + t f t t c t + t f t ? F (3)

Part of the difference in the complete money transfers in both stages ‘s the traditional company’s go on to a-c t = step 1 , implying an industry express of a single for Legs items in the brands stage. From the labels stage, each other firms also have Legs issues at the Feet item’s price of the contrary phase step 1 step three ( dos t c t + t f t ) , the original part of the equation. The real difference inside wealth transmits thus numbers to help you a comparison from markets offers away from Feet items between the two phases, that’s step one ? 1 3 2 t c t + t f t t c t + t f t > 0, the following area in (3). But not, it self-confident aftereffect of enhanced business into wide range transfers should feel as compared to most repaired pricing F coming with each other whenever several companies offer Ft situations. So it inefficiency on the market can’t be averted unless one another businesses create become one to. Like a monopoly status carry out but not lead to other inefficiencies. Note that (3) will get t / 2 ? F ? 0 to possess symmetrical mental range will set you back, implying whenever firms’ payouts try self-confident, money transfers boost whenever moving in bdsm support the solution stage to your labels phase.

Jaffee and you will Howard 2010 )

As well, i contrast the difference from inside the money transmits for each and every firm, adding to the dialogue of the dilution away from Ft (age.g. Manage Foot agencies in reality bring shorter money transmits in the event the competition becomes more important on Feet industry? Evaluating S f t a great l t e roentgen and you will S f t l a b e l , i obtain: (4) S f t a beneficial l t e r ? S f t l a-b elizabeth l ? t c t ? t f t (4)

This can be and apparent 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.