abstract

Cahier du Laboratoire d'Econométrie N° 2005-004

Product differentiation when consumers may choose not to buy : Hotelling's convergence result revisited

March 2005

Auteur :

Karine Van der Straeten

Abstract:

This paper studies Hotelling's spatial competition between two firms, but rather than assuming that consumers are ready to buy the good whatever the locations of the firms are, it is assumed here that there is an upper limit (possibly infinite) to the distance a consumer is ready to cover to buy the good. Under this slight generalization of Hotelling's assumptions, Hotelling's ``minimal differentiation principle'' does not hold in general. At equilibrium, firms choose ``minimal'', ``intermediate'' or ``complete'' differentiation, depending on this critical distance a consumer is ready to cover and on the shape of the distribution of consumers' locations.

Keyword(s):
Hotelling's spatial competition model, product differentiation

Product differentiation when consumers may choose not to buy : Hotelling's convergence result revisited March 2005

Auteur :
Karine Van der Straeten

Abstract:
This paper studies Hotelling's spatial competition between two firms, but rather than assuming that consumers are ready to buy the good whatever the locations of the firms are, it is assumed here that there is an upper limit (possibly infinite) to the distance a consumer is ready to cover to buy the good. Under this slight generalization of Hotelling's assumptions, Hotelling's ``minimal differentiation principle'' does not hold in general. At equilibrium, firms choose ``minimal'', ``intermediate'' or ``complete'' differentiation, depending on this critical distance a consumer is ready to cover and on the shape of the distribution of consumers' locations.


Keyword(s):	Hotelling's spatial competition model, product differentiation