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Imitation Versus Differentiation: Balance Between Product Similarities and Differences in a Hotelling Model

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  • Kimura,Koichiro

Abstract

Firms not only differentiate their products to increase their market power but also imitate the successful product characteristics of their competitors to increase their market power or neutralize that of their competitors. Although many studies have been conducted on differentiation and imitation, the balance of product similarities and differences in each industry has not been explicit. Hence, this study introduces the concept of imitation and the costs of differentiation and imitation into the Hotelling model to analyze both. Thereby, this analysis shows that firms need not only to differentiate but also to imitate from each other to maximize profits. Thus, increasing product similarities between firms in an industry characterizes that industry as different from others; increasing product differences between firms in an industry increases the diversity of products in that industry.

Suggested Citation

  • Kimura,Koichiro, 2024. "Imitation Versus Differentiation: Balance Between Product Similarities and Differences in a Hotelling Model," IDE Discussion Papers 917, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper917
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    2. Kapur, Sandeep, 1995. "Technological Diffusion with Social Learning," Journal of Industrial Economics, Wiley Blackwell, vol. 43(2), pages 173-195, June.
    3. Kimura,Koichiro, 2023. "Does the product characteristic distance get closer or not? Differentiation and imitation in a hotelling model," IDE Discussion Papers 869, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    4. Bronwyn H. Hall & Nathan Rosenberg (ed.), 2010. "Handbook of the Economics of Innovation," Handbook of the Economics of Innovation, Elsevier, edition 1, volume 1, number 1.
    5. Kou, Zonglai & Zhou, Min, 2015. "Hotelling’s competition with relative performance evaluation," Economics Letters, Elsevier, vol. 130(C), pages 69-71.
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    Keywords

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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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