A Unidirectional Hotelling Model
The standard hotelling model with linear transportation costs predicts an aggregation of the two competing firms in the middle of the customers support interval (Minimum Differentiation Principle). Using quadratic transportation costs, the two firms would locate in the opposite extremities of the interval (Maximum Differentiation Principle). Both cases assume bidirectional purchasing ability : a consumer can buy from a firm whether it is located on her right or on her left. In a situation where a consumer can buy only from firms located on her right (left), we show that one firm would locate at the right (left) end of the hotelling line while the other would locate at 3/5 (2/5) from the left end.
Volume (Year): 29 (2009)
Issue (Month): 3 ()
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