A Location Model with Preference for Variety
We propose a new location model where consumers are allowed to make multiple purchases (i.e., one unit from each firm). This model fits many markets (e.g. newspapers, credit cards, scholarly journals, subscriptions to TV channels, etc.) better than existing models. A common feature of these markets is that some consumers are loyal to one brand, while others consume more than one product. Our model yields predictions consistent with this observation. Moreover, it restores Hotelling's Principle of Minimum Differentiation, by generating an equilibrium in pure strategies and with a linear transportation cost, where firms are located at the center and charge prices above marginal cost
|Date of creation:||11 Aug 2004|
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