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Spacial Equilibrium in a State Space Approach to Demand Uncertainty

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  • Kieron J. Meagher

    ()
    (School of Economics, The University of New South Wales)

  • Klaus G. Zauner

    (University of York)

Abstract

Firms are likely to be uncertain about consumer preferences when launching products. The existing literature models preference uncertainty as an additive shock to the consumer distribution in a characteristic space model. The additive shock only shifts the mean of the consumers' ideal points. We generalize this approach to a state space model in which a vector of parameters can give rise to di erent distributions of consumer tastes in di erent states, allowing other moments of the consumer density to be uncertain. An equilibrium existence result is given. In the case of symmetric distributions, the unique subgame-perfect equilibrium can be described by a simple closed-form solution.

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File URL: http://wwwdocs.fce.unsw.edu.au/economics/Research/WorkingPapers/2007_19.pdf
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Bibliographic Info

Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2007-19.

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Length: 8 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:swe:wpaper:2007-19

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Keywords: Location; Product Di erentiation; Uncertainty; Hotelling;

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