Competition in multi-characteristics spaces: hotelling was almost right
AbstractLancasterian models of product differentiation typically assume a one- dimensional characteristics space. We show that standard results on prices and locations no longer hold when firms compete in a multi- characteristics space. In the location game with n characteristics, firms choose to maximize differentiation in the dominant characteristic and to minimize differentiation in the others when the salience coefficient of the former is sufficiently large. Thus, the principle of minimum dif- ferentiation holds for all but one characteristic. Furthermore, prices do not necessarily fall when products get closer in the characteristics space because price competition is relaxed when products are differentiated enough in the dominant characteristic.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1997053.
Date of creation: 01 Aug 1997
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product positioning; multi-characteristics space;
Other versions of this item:
- Irmen, Andreas & Thisse, Jacques-Francois, 1998. "Competition in Multi-characteristics Spaces: Hotelling Was Almost Right," Journal of Economic Theory, Elsevier, vol. 78(1), pages 76-102, January.
- Irmen, Andreas & Thisse, Jacques-François, 1996. "Competition in Multi-characteristics Spaces: Hotelling was Almost Right," CEPR Discussion Papers 1446, C.E.P.R. Discussion Papers.
- Andreas IRMEN & Jean-François THISSE, 1996. "Competition in Multi-Characteristics Spaces: Hotelling Was Almost Right," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 9613, Université de Lausanne, Faculté des HEC, DEEP.
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- M3 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising
- R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Production Analysis, and Firm Location
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