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Product differentiation when consumers may choose not to buy: Hotelling's convergence result revisited

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  • Karine Van Der Straeten

    (PSE - La plante et son environnement - CNRS - Centre National de la Recherche Scientifique - INA P-G - Institut National Agronomique Paris-Grignon - UP11 - Université Paris-Sud - Paris 11 - INRA - Institut National de la Recherche Agronomique)

Abstract

This paper studies Hotelling's spatial competition between two firms, but rather than assuming that consumers are ready to buy the good whatever the locations of the firms are, it is assumed here that there is an upper limit (possibly infinite) to the distance a consumer is ready to cover to buy the good. Under this slight generalization of Hotelling's assumptions, Hotelling's ``minimal differentiation principle'' does not hold in general. At equilibrium, firms choose ``minimal'', ``intermediate'' or ``complete'' differentiation, depending on this critical distance a consumer is ready to cover and on the shape of the distribution of consumers' locations.

Suggested Citation

  • Karine Van Der Straeten, 2005. "Product differentiation when consumers may choose not to buy: Hotelling's convergence result revisited," Working Papers hal-00242963, HAL.
  • Handle: RePEc:hal:wpaper:hal-00242963
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00242963
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    References listed on IDEAS

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    1. Osborne, Martin J & Pitchik, Carolyn, 1987. "Equilibrium in Hotelling's Model of Spatial Competition," Econometrica, Econometric Society, vol. 55(4), pages 911-922, July.
    2. 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.
    3. Economides, Nicholas, 1986. "Minimal and maximal product differentiation in Hotelling's duopoly," Economics Letters, Elsevier, vol. 21(1), pages 67-71.
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