Do Consumers' Preferences Really Matter? - A Note on Spatial Competition with Restricted Strategies
AbstractIn the framework Hotelling-Downs competition two players can freely choose a position along a one-dimensional market. We introduce restrictions of feasible strategies and analyze the consequences for players and consumers. In equilibrium players may minimally differentiate away from the center of the market and even locate completely independently of consumers' preferences. We provide conditions for these novel cases as well as for the standard result that players locate on the median of the distribution of consumers. In addition to the short run, where restrictions are fixed, we elaborate on the long run by studying the players' choice of restrictions under (potential) market entry. In both settings, we find an inefficient outcome, in which a firm is capable of offering a product at the center of the market, but instead chooses a position that is worse for most of the consumers.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 55288.
Date of creation: 12 Apr 2014
Date of revision:
duopoly; product differentiation; Hotelling-Downs; median voter; market entry;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D49 - Microeconomics - - Market Structure and Pricing - - - Other
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-04-18 (All new papers)
- NEP-COM-2014-04-18 (Industrial Competition)
- NEP-MIC-2014-04-18 (Microeconomics)
- NEP-MKT-2014-04-18 (Marketing)
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