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The Importance of the Distribution of Consumers in Horizontal Product Differentiation

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  • Zenou, Yves
  • Calvó-Armengol, Antoni

Abstract

This Paper examines the importance of the distribution of consumers in Hotelling's circle on the comparison between the optimal and the market equilibrium levels of diversity. It finds that when most consumers are located very close to the firms, the result of Salop that the equilibrium number of firms is larger than the optimal one (surplus maximizing) can be reversed.

Suggested Citation

  • Zenou, Yves & Calvó-Armengol, Antoni, 2001. "The Importance of the Distribution of Consumers in Horizontal Product Differentiation," CEPR Discussion Papers 3031, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3031
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    1. Neven, Damien J., 1986. "On Hotelling's competition with non-uniform customer distributions," Economics Letters, Elsevier, vol. 21(2), pages 121-126.
    2. Jehiel, Philippe, 1992. "Product differentiation and price collusion," International Journal of Industrial Organization, Elsevier, vol. 10(4), pages 633-641, December.
    3. Kats, Amoz, 1995. "More on Hotelling's stability in competition," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 89-93, March.
    4. Fujita,Masahisa & Thisse,Jacques-François, 2013. "Economics of Agglomeration," Cambridge Books, Cambridge University Press, number 9781107001411, January.
    5. Masahisa Fujita & Jacques-François Thisse, 1986. "Spatial Competition with a Land Market: Hotelling and Von Thunen Unified," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(5), pages 819-841.
    6. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    7. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
    8. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
    9. Shilony, Yuval, 1981. "Hotelling's competition with general customer distributions," Economics Letters, Elsevier, vol. 8(1), pages 39-45.
    10. Bloch, Francis & Manceau, Delphine, 1999. "Persuasive advertising in Hotelling's model of product differentiation," International Journal of Industrial Organization, Elsevier, vol. 17(4), pages 557-574, May.
    11. Economides, Nicholas, 1984. "Do increases in preference similarity (across countries) induce increases in trade? : An affirmative example," Journal of International Economics, Elsevier, vol. 17(3-4), pages 375-381, November.
    12. SHILONY, Yuval, 1981. "Hotelling's competition with general customer distributions," LIDAM Reprints CORE 457, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    13. Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
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    Cited by:

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    2. Gu, Yiquan & Rasch, Alexander & Wenzel, Tobias, 2022. "Consumer salience and quality provision in (un)regulated public service markets," Regional Science and Urban Economics, Elsevier, vol. 93(C).
    3. Fabio Dio & Luca Correani, 2020. "Quality-improving and cost-reducing strategic alliances," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 37(2), pages 493-524, July.
    4. Sedghi, Nafiseh & Shavandi, Hassan & Abouee-Mehrizi, Hossein, 2017. "Joint pricing and location decisions in a heterogeneous market," European Journal of Operational Research, Elsevier, vol. 261(1), pages 234-246.
    5. Chen, Yuwen & Ni, John & Yu, Degan, 2019. "Application developers’ product offering strategies in multi-platform markets," European Journal of Operational Research, Elsevier, vol. 273(1), pages 320-333.
    6. John Harter, 2019. "Endogenous Firm Location with a Decreasing Density of Consumers," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 8(2), pages 35-44, December.
    7. Torrisi, Gianpiero, 2008. "The model of the linear city under a triangular distribution of consumers: an empirical analysis on price and location of beverage kiosks in Catania," MPRA Paper 12694, University Library of Munich, Germany.
    8. Simon Loertscher & Gerd Muehlheusser, 2005. "Global and local players in a model of spatial competition," Diskussionsschriften dp0511, Universitaet Bern, Departement Volkswirtschaft.
    9. Francisco Martínez-Sánchez, 2022. "Privatization Policies by National and Regional Governments," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 24(02), pages 1-23, June.

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    More about this item

    Keywords

    Hotelling; Market equilibrium; Social optimism;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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