- A Difficulty With The Address Models Of Product Differentiation
AbstractIn 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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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 1998-21.
Length: 14 pages
Date of creation: Sep 1998
Date of revision:
Publication status: Published by Ivie
product differentiation; unit demand; heterogenous income;
Other versions of this item:
- Martin Peitz, 1999. "A difficulty with the address models of product differentiation," Economic Theory, Springer, vol. 14(3), pages 717-727.
- 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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