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The Max-Min Principle of Product Differentiation: An Experimental Analysis

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Andrea Mangani
Paolo Patelli

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Abstract

Theoretical models of multidimensional product differentiation predict that in duopoly firms differentiate maximally along one dimension and minimally along the other dimensions. We experimentally reproduce a market in which firms can differentiate their products along two horizontal dimensions. The main result is that subjects do not differentiate their products and locate near the center consumers' distribution.

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Paper provided by Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy in its series LEM Papers Series with number 2002/05.

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Date of creation: 09 Dec 2002
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Handle: RePEc:ssa:lemwps:2002/05

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  7. Eaton, B Curtis & Lipsey, Richard G, 1975. "The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition," Review of Economic Studies, Blackwell Publishing, vol. 42(1), pages 27-49, January. [Downloadable!] (restricted)
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  8. Collins, Richard & Sherstyuk, Katerina, 2000. "Spatial Competition with Three Firms: An Experimental Study," Economic Inquiry, Oxford University Press, vol. 38(1), pages 73-94, January.
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  9. Degryse, Hans, 1996. "On the Interaction between Vertical and Horizontal Product Differentiation: An Application to Banking," Journal of Industrial Economics, Blackwell Publishing, vol. 44(2), pages 169-86, June. [Downloadable!] (restricted)
  10. Tabuchi, Takatoshi, 1994. "Two-stage two-dimensional spatial competition between two firms," Regional Science and Urban Economics, Elsevier, vol. 24(2), pages 207-227, April. [Downloadable!] (restricted)
  11. Helmut Bester, 1998. "Quality Uncertainty Mitigates Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 828-844, Winter. [Downloadable!] (restricted)
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  13. Garella, Paolo G. & Lambertini, Luca, 1999. "Good vs. bad characteristics in vertical differentiation," Economics Letters, Elsevier, vol. 65(2), pages 245-248, November. [Downloadable!] (restricted)
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