Asim Ansari (Graduate School of Business, Columbia University) Nicholas Economides (Stern School of Business, New York University) Joel Steckel (Stern School of Business, New York University)
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We analyze two and three-dimensional variants of Hotelling's model of differentiated products. In our setup, consumers can place different importance on each product attribute; this is measured by a weight in the disutility of distance in each dimension. Two firms play a two-stage game; they choose locations in stage 1 and prices in stage 2. We seek subgame-perfect equilibria. We find that all such equilibria have maximal differentiation in one dimension only; in all other dimensions, they have minimum differentiation. An equilibrium with maximal differentiation in a certain dimension occurs when consumers place sufficient importance (weight) on that attribute. Thus, depending on the importance consumers place on each attribute, in two dimensions there is a max-min equilibrium, a min-max equilibrium, or both. In three dimensions, depending on the weights, there can be a max-min-min equilibrium, a min-max-min equilibrium, a min-min-max equilibrium, any two of them, or all three.
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Length: 36 pages Date of creation: 05 Feb 1997 Date of revision: Handle: RePEc:wpa:wuwpio:9702001
Note: Type of Document - PDF/PostScript; prepared on IBM; to print on HP; pages: 36; figures: included at the end. forthcoming, Journal of Regional Science (1997) Contact details of provider: Web page: http://129.3.20.41
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Find related papers by JEL classification: L - Industrial Organization
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