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Hotelling meets Shaked and Sutton: a unified linear model of product differentiation

Author

Listed:
  • Armin Schmutzler

Abstract

This paper provides a simple unified discrete-choice framework for analyzing differentiated duopolies. This framework nests models of horizontal and vertical differentiation, including standard textbook models (Hotelling and Shaked-Sutton). Contrary to these models, it also applies to economic environments where horizontal differentiation coincides with positive correlation of product valuations across consumers, and environments where vertical differentiation coincides with negative correlation. The paper provides an equilibrium characterization that is applicable independently of the type of differentiation and the sign of the valuation correlation.

Suggested Citation

  • Armin Schmutzler, 2024. "Hotelling meets Shaked and Sutton: a unified linear model of product differentiation," ECON - Working Papers 461, Department of Economics - University of Zurich.
    • Handle: RePEc:zur:econwp:461
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    File URL: https://www.zora.uzh.ch/id/eprint/266479/1/econwp461.pdf
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    More about this item

    Keywords

    Duopoly; differentiated products; price competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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