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Equilibrium with Product Differentiation

Listed author(s):
  • Jeffrey M. Perloff
  • Steven C. Salop

A model of product differentiation which combines elements of both spatial and representative consumer formulations is used to examine the properties of single- and multiple-price equilibria. Conditions under which decreases in the intensity of consumer preferences reduce price are given. It is shown that, with certain types of demand curves, entry can eliminate price-cost markups even given product differentiation. If competition is localized, it is demonstrated that entry does not affect the markup. Finally, the effect of spurious product differentiation on price is examined.

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File URL: http://hdl.handle.net/10.2307/2297473
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Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 52 (1985)
Issue (Month): 1 ()
Pages: 107-120

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Handle: RePEc:oup:restud:v:52:y:1985:i:1:p:107-120.
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  1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 217-235.
  2. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 493-510.
  3. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  4. Michael Sattinger, 1984. "Value of an Additional Firm in Monopolistic Competition," Review of Economic Studies, Oxford University Press, vol. 51(2), pages 321-332.
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