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Another model of sales. Price discrimination in a differentiated duopoly market

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Abstract

Using a model of horizontal differentiation where a variety dimension is added to Hotelling's (1929) "linear city" duopoly model, I show that even when costs and demand are symmetric, price discrimination may be an equilibrium phenomenon. In the model each customer have a preferred variety and a preferred firm. They have perfect information about all prices and may be induced to switch variety and firm given a sufficient price difference. Price discrimination equilibrium exists when a sufficient fraction of consumers are elastic both with respect to variety and firm.

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  • Mehlum, Halvor, 2016. "Another model of sales. Price discrimination in a differentiated duopoly market," Memorandum 12/2016, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2016_012
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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2016/memo-12-2016.pdf
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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