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Multi-Dimensional Product Differentiation

Author

Listed:
  • Qihong Liu

    (Department of Economics, University of Oklahoma, Norman, OK 73019, USA)

  • Jie Shuai

    (Wenlan School of Business, Zhongnan University of Economics and Law, Wuhan 430073, China)

Abstract

We analyze product differentiation in a multi-dimensional model with non-uniform consumer distribution. The level of product differentiation is measured by both unit transport costs and firms’ locations. Our analysis concerns both measures. First, fixing firms’ locations, we show that equilibrium prices can increase or decrease with unit transport costs. The overall result depends on the interplay of a shifting effect and a rotating effect—the latter exists only in multi-dimensional models. Second, fixing unit transport costs, we find that under non-uniform distribution, there may exist no equilibrium where firms maximize differentiation on one dimension but minimize differentiation on other dimensions. Instead, there may exist an equilibrium where firms choose intermediate locations, contrary to common findings in existing studies which assume uniform distribution.

Suggested Citation

  • Qihong Liu & Jie Shuai, 2019. "Multi-Dimensional Product Differentiation," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 14(4), pages 497-535, December.
  • Handle: RePEc:fec:journl:v:14:y:2019:i:4:p:497-535
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-008-019-0021-1
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    Citations

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    Cited by:

    1. Matthew Gentzkow & Jesse M. Shapiro & Michael Sinkinson, 2014. "Competition and Ideological Diversity: Historical Evidence from US Newspapers," American Economic Review, American Economic Association, vol. 104(10), pages 3073-3114, October.
    2. Chen, Zhiqi & Ross, Thomas W., 2020. "Buffer joint ventures," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    3. Zhiqi Chen & Heng Xu, 2021. "Private labels and product quality under asymmetric information," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(4), pages 743-759, November.
    4. José Marino García García & Aurelia Valiño Castro & A. Jesús Sánchez Fuentes, 2016. "Price discrimination of ott providers under duopolistic competition and multi-dimmesional product differentiation in retail broadband access," Working Papers. Collection A: Public economics, governance and decentralization 1607, Universidade de Vigo, GEN - Governance and Economics research Network.
    5. Dawen Meng & Guoqiang Tian, 2021. "The competitive and welfare effects of long-term contracts with network externalities and bounded rationality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(1), pages 337-375, July.

    More about this item

    Keywords

    multi-dimensional model; product differentiation; unit transport costs; location choice; consumer distribution;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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