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Differentiation in a Two-Dimensional Market with Endogenous Sequential Entry

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  • Jeffrey D. Michler
  • Benjamin M. Gramig

Abstract

Previous research on two-dimensional extensions of Hotelling's location game has argued that spatial competition leads to maximum differentiation in one dimensions and minimum differentiation in the other dimension. We expand on existing models to allow for endogenous entry into the market. We find that competition may lead to the min/max finding of previous work but also may lead to maximum differentiation in both dimensions. The critical issue in determining the degree of differentiation is if existing firms are seeking to deter entry of a new firm or to maximizing profits within an existing, stable market.

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  • Jeffrey D. Michler & Benjamin M. Gramig, 2021. "Differentiation in a Two-Dimensional Market with Endogenous Sequential Entry," Papers 2103.11051, arXiv.org.
    • Handle: RePEc:arx:papers:2103.11051
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    1. H. A. Eiselt & Gilbert Laporte & Jacques-François Thisse, 1993. "Competitive Location Models: A Framework and Bibliography," Transportation Science, INFORMS, vol. 27(1), pages 44-54, February.
    2. Hay, D A, 1976. "Sequential Entry and Entry-Deterring Strategies in Spatial Competition," Oxford Economic Papers, Oxford University Press, vol. 28(2), pages 240-257, July.
    3. Hakimi, S. Louis, 1983. "On locating new facilities in a competitive environment," European Journal of Operational Research, Elsevier, vol. 12(1), pages 29-35, January.
    4. Gotz, Georg, 2005. "Endogenous sequential entry in a spatial model revisited," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 249-261, April.
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    7. Nicholas Economides & Jamie Howell & Sergio Meza, 2002. "Does it Pay to be First? Sequential Locational Choice and Foreclosure," Working Papers 02-19, New York University, Leonard N. Stern School of Business, Department of Economics.
    8. Rothschild, R, 1976. "A Note on the Effect of Sequential Entry on Choice of Location," Journal of Industrial Economics, Wiley Blackwell, vol. 24(4), pages 313-320, June.
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