Core Characteristics Analysis

Most frequently economists have employed variants of five basic formal approaches to the analysis of product differentiation, and in the following chapters some important prototypes of these frameworks will be illustrated and adapted for use. The first and oldest of the techniques was referred to in Chapter 1 as drawing upon the notion of spatial extent both literally and analogically, with Hotelling’s seminal article a point of departure in both usages.1 One of the most important and most apparent differentiating characteristics of many products is the location of their producers, sellers or customers in geographic space. von Thünen (1929), Weber (1909, 1929), Predöhl (1928), Palander (1935), Lösch (1954), Isard (1956), and Beckmann and Puu (1985). produced landmark scholarship efforts on the path to modern spatial economic theory. There is now an extensive body of literature dealing with these literal spatial aspects of firms’ strategies and there is no need to deal with it in the narrow confines of the present book. Therefore efforts in this area are limited to those analyses (1) that are importantly concerned with spatial competition within an oligopolistic context or (2) that use the spatial model as a metaphor for placement in a product space. This approach is discussed in Chapter 4. and used in Chapter 11 to model firms’ decisions to relocate in a product space. Moreover, throughout our theory and modeling the notion of “cognitive distancing” of products in such a space is employed.