IDEAS home Printed from https://ideas.repec.org/a/spr/joecth/v14y1999i3p717-727.html
   My bibliography  Save this article

A difficulty with the address models of product differentiation

Author

Listed:
  • Martin Peitz

    () (Departamento Fundamentos del AnaÂlisis EconoÕmico, University of Alicante, E-03071 Alicante, SPAIN)

Abstract

In models of product differentiation and location models it is implicitly assumed that consumers can afford to buy the differentiated goods in the market. I show that with income heterogeneity there are severe existence problems of a price equilibrium in models of horizontal product differentiation with unit demand because some consumers are income-constrained. The result generalizes to other models of product differentiation, search, and switching costs. I present an alternative specification of variable individual demand in which this kind of existence problem cannot arise.

Suggested Citation

  • Martin Peitz, 1999. "A difficulty with the address models of product differentiation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 14(3), pages 717-727.
    • Handle: RePEc:spr:joecth:v:14:y:1999:i:3:p:717-727
    Note: Received: October 17, 1997; revised version: February 20, 1998
    as

    Download full text from publisher

    File URL: http://link.springer.de/link/service/journals/00199/papers/9014003/90140717.pdf
    Download Restriction: Access to the full text of the articles in this series is restricted

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    2. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    3. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
    4. Martin Peitz, 1998. "- Two-Stage Models Of Product Differentiation With Unit-Elastic Demand," Working Papers. Serie AD 1998-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    5. Peitz, Martin, 1997. "Differentiated Bertrand duopoly with variable demand," Research in Economics, Elsevier, vol. 51(2), pages 85-100, June.
    6. Bockem, Sabine, 1994. "A Generalized Model of Horizontal Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 287-298, September.
    7. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
    8. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    9. Beath,John & Katsoulacos,Yannis, 1991. "The Economic Theory of Product Differentiation," Cambridge Books, Cambridge University Press, number 9780521335522, December.
    10. Beath,John & Katsoulacos,Yannis, 1991. "The Economic Theory of Product Differentiation," Cambridge Books, Cambridge University Press, number 9780521335263, December.
    11. Cremer, Helmuth & Thisse, Jacques-Francois, 1991. "Location Models of Horizontal Differentiation: A Special Case of Vertical Differentiation Models," Journal of Industrial Economics, Wiley Blackwell, vol. 39(4), pages 383-390, June.
    12. Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
    13. Economides, Nicholas, 1984. "The principle of minimum differentiation revisited," European Economic Review, Elsevier, vol. 24(3), pages 345-368, April.
    14. Peitz, Martin, 1995. "Utility maximization in models of discrete choice," Economics Letters, Elsevier, vol. 49(1), pages 91-94, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pia Weiß, 2001. "Product and Process Innovations in a Horizontally Differentiated Product Market," IWP Discussion Paper Series 07/2001, Institute for Economic Policy, Cologne, Germany.
    2. Peitz, Martin, 2000. "Aggregation in a Model of Price Competition," Journal of Economic Theory, Elsevier, vol. 90(1), pages 1-38, January.

    More about this item

    Keywords

    Product differentiation; Unit demand; Heterogeneous income; Discrete choice.;

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:14:y:1999:i:3:p:717-727. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Andrew Huffard) The email address of this maintainer does not seem to be valid anymore. Please ask Andrew Huffard to update the entry or send us the correct email address. General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.