In Hotelling type models consumers have the same transportation cost function. We deviate from this assumption and introduce two consumer types. Some consumers have linear transportation costs, while the others have quadratic transportation costs. If at most half the consumers have linear transportation costs, a subgame perfect equilibrium in pure strategies exists for all symmetric locations. Furthermore, no general principle of differentiation holds. With two consumer types, the equilibrium pattern ranges from maximum to intermediate differentiation. The degree of product differentiation depends on the fraction of consumer types
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Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number
dp0509.
Find related papers by JEL classification: L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets R32 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - Other Production and Pricing Analysis
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