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Competition in multi-characteristics spaces: hotelling was almost right

  • IRMEN, Andreas

    ()

    (Université de Lausanne, HEC-DEEP, Lausanne-Dorigny)

  • THISSE, Jacques-Francois

    ()

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

Lancasterian models of product differentiation typically assume a one- dimensional characteristics space. We show that standard results on prices and locations no longer hold when firms compete in a multi- characteristics space. In the location game with n characteristics, firms choose to maximize differentiation in the dominant characteristic and to minimize differentiation in the others when the salience coefficient of the former is sufficiently large. Thus, the principle of minimum dif- ferentiation holds for all but one characteristic. Furthermore, prices do not necessarily fall when products get closer in the characteristics space because price competition is relaxed when products are differentiated enough in the dominant characteristic.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1997053.

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Date of creation: 01 Aug 1997
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Handle: RePEc:cor:louvco:1997053
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  11. d'ASPREMONT, C. & GABSZEZWICZ, Jean J. & THISSE, J.-F., . "Product differences and prices," CORE Discussion Papers RP -508, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  14. Fujita, Masahisa & Thisse, Jacques-François, 1996. "Economics of Agglomeration," CEPR Discussion Papers 1344, C.E.P.R. Discussion Papers.
  15. Mark B. Vandenbosch & Charles B. Weinberg, 1995. "Product and Price Competition in a Two-Dimensional Vertical Differentiation Model," Marketing Science, INFORMS, vol. 14(2), pages 224-249.
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