exposita notes : A difficulty with the address models of product differentiation

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exposita notes : A difficulty with the address models of product differentiation

Author Info

Martin Peitz () (Departamento Fundamentos del AnaÂlisis EconoÕmico, University of Alicante, E-03071 Alicante, SPAIN)

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Martin Peitz

Abstract

In models of product differentiation and location models it is implicitly assumed that consumers can afford to buy the differentiated goods in the market. I show that with income heterogeneity there are severe existence problems of a price equilibrium in models of horizontal product differentiation with unit demand because some consumers are income-constrained. The result generalizes to other models of product differentiation, search, and switching costs. I present an alternative specification of variable individual demand in which this kind of existence problem cannot arise.

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Publisher Info
Article provided by Springer in its journal Economic Theory.

Volume (Year): 14 (1999)
Issue (Month): 3 ()
Pages: 717-727
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Handle: RePEc:spr:joecth:v:14:y:1999:i:3:p:717-727

Note: Received: October 17, 1997; revised version: February 20, 1998
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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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