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Nesting horizontal and vertical differentiation

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  • Gabszewicz, Jean J.
  • Wauthy, Xavier Y.

Abstract

We explore a variant of the Hotelling model which allows to nest horizontal and vertical differentiation into a unified setup whose key parameter is the relative natural market size of the firms. In this setup, equilibrium prices increase whenever population's disparity decreases. We also explore the properties of the model in the case of entry by a vertically differentiated product into an otherwise horizontally differentiated industry.

Suggested Citation

  • Gabszewicz, Jean J. & Wauthy, Xavier Y., 2012. "Nesting horizontal and vertical differentiation," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 998-1002.
    • Handle: RePEc:eee:regeco:v:42:y:2012:i:6:p:998-1002
    DOI: 10.1016/j.regsciurbeco.2011.10.004
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    References listed on IDEAS

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    1. Jaskold Gabszewicz, J. & Thisse, J. -F., 1980. "Entry (and exit) in a differentiated industry," Journal of Economic Theory, Elsevier, vol. 22(2), pages 327-338, April.
    2. Beath,John & Katsoulacos,Yannis, 1991. "The Economic Theory of Product Differentiation," Cambridge Books, Cambridge University Press, number 9780521335263, Enero-Abr.
    3. Gabszewicz, Jean Jaskold & Thisse, Jacques-Francois, 1986. "On the Nature of Competition with Differentiated Products," Economic Journal, Royal Economic Society, vol. 96(381), pages 160-172, March.
    4. Dos Santos Ferreira, Rodolphe & Thisse, Jacques-Francois, 1996. "Horizontal and vertical differentiation: The Launhardt model," International Journal of Industrial Organization, Elsevier, vol. 14(4), pages 485-506, June.
    5. Neven, D. & Thisse, J-F., 1989. "On Quality And Variety Competition," LIDAM Discussion Papers CORE 1989020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-1483, September.
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    Citations

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    Cited by:

    1. Wen-Chung Guo & Fu-Chuan Lai, 2013. "Nesting Horizontal and Vertical Differentiation with Location Choices," Pacific Economic Review, Wiley Blackwell, vol. 18(4), pages 546-556, October.
    2. Luo, Jinjing & Moschini, GianCarlo, 2019. "Pass-through of the policy-induced E85 subsidy: Insights from Hotelling's model," Energy Economics, Elsevier, vol. 84(C).
    3. Naixin Zhu, 2023. "Dissertation on Applied Microeconomics of Freemium Pricing Strategies in Mobile App Market," Papers 2305.09479, arXiv.org.
    4. Maria Rosa Battaggion & Alessandro Vaglio, 2015. "Pin-ups and Journalists: A Model of Media Market with News and Entertainment," Journal of Media Economics, Taylor & Francis Journals, vol. 28(4), pages 217-245, October.
    5. Ribeiro, Vitor Miguel & Soares, Isabel, 2025. "A primer on verti-zontally differentiated peer-to-peer energy intraday trading platforms with and without customization," Energy, Elsevier, vol. 320(C).
    6. James A. Brander & Barbara J. Spencer, 2022. "Differentiated Entry or “Me-Too” Entry in Bertrand and Cournot Oligopoly," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(1), pages 1-27, February.
    7. Afonso Rodrigues, 2026. "Endogenous Product Design: A Linear Demand Approach," Papers 2602.02833, arXiv.org, revised Apr 2026.
    8. Francisco Martínez-Sánchez, 2022. "Privatization Policies by National and Regional Governments," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 24(02), pages 1-23, June.
    9. Vitor Miguel Ribeiro & João Correia-da-Silva & Joana Resende, 2016. "Nesting Vertical And Horizontal Differentiation In Two-Sided Markets," Bulletin of Economic Research, Wiley Blackwell, vol. 68(S1), pages 133-145, December.
    10. Jing Wu & He Li & Zhangxi Lin & Khim-Yong Goh, 2017. "How big data and analytics reshape the wearable device market – the context of e-health," International Journal of Production Research, Taylor & Francis Journals, vol. 55(17), pages 5168-5182, September.
    11. Picard, P.M., 2015. "Trade, economic geography and the choice of product quality," Regional Science and Urban Economics, Elsevier, vol. 54(C), pages 18-27.
    12. Mantovani, Andrea & Tarola, Ornella & Vergari, Cecilia, 2016. "Hedonic and environmental quality: A hybrid model of product differentiation," Resource and Energy Economics, Elsevier, vol. 45(C), pages 99-123.
    13. Belleflamme, Paul & Peitz, Martin & Toulemonde, Eric, 2022. "The tension between market shares and profit under platform competition," International Journal of Industrial Organization, Elsevier, vol. 81(C).

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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