An experimental study on multi-dimensional spatial product differentiation
AbstractThis study presents the results of an experiment on spatial differentiation of products in Hotelling-type models with different grades of complexity for companies’ choices of space. Three models were compared, including models with a single decision variable (single-dimensional space with automatically calculated prices), two decision variables (single-dimensional space with prices assigned by the participants) and three decision variables (bi-dimensional space with prices assigned by the participants). The research revealed that in more complex conditions, the product differentiation was smaller and that the prices were lower than in a simple environment when the Nash equilibrium was confirmed. Companies that function in complex conditions do not take advantage of the opportunity to make high profits based on product differentiation. This has a greater impact on price rigidity with respect to product variety than could be theoretically predicted. Strategies based on product differentiation are, therefore, less profitable than expected based on theoretical predictions.
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Bibliographic InfoPaper provided by Faculty of Economic Sciences, University of Warsaw in its series Working Papers with number 2011-11.
Length: 28 pages
Date of creation: 2011
Date of revision:
spatial competition; product differentiation; laboratory experiments;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-11 (All new papers)
- NEP-COM-2011-06-11 (Industrial Competition)
- NEP-EXP-2011-06-11 (Experimental Economics)
- NEP-GEO-2011-06-11 (Economic Geography)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979.
"On Hotelling's "Stability in Competition","
Econometric Society, vol. 47(5), pages 1145-50, September.
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