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Multi-Dimensional Product Differentiation

Qihong Liu

University of Oklahoma - Department of Economics

Jie Shuai

Zhongnan University of Economics and Law

February 4, 2013

We examine the issue of product differentiation using a multi-dimensional model with general consumer distribution. We consider both firm location and unit transport cost. First, equilibrium prices can increase or decrease with unit transport cost. In particular, a change in unit transport cost has a rotating effect on equilibrium prices in our multi-dimensional model, but this effect is absent in one-dimensional models. Second, there may exist no equilibrium where firms maximize differentiation on one dimension but minimize differentiation on other dimensions. Instead, there may exist equilibrium where firms choose intermediate locations, contrary to the common findings in existing studies which assume uniform distribution.

Number of Pages in PDF File: 36

Keywords: Multi-dimensional product differentiation, Unit transport cost, Location choice

JEL Classification: D43, L13

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Date posted: December 21, 2011 ; Last revised: February 8, 2013

Suggested Citation

Liu, Qihong and Shuai, Jie, Multi-Dimensional Product Differentiation (February 4, 2013). Available at SSRN: http://ssrn.com/abstract=1975191 or http://dx.doi.org/10.2139/ssrn.1975191

Contact Information

Qihong Liu (Contact Author)
University of Oklahoma - Department of Economics ( email )
Norman, OK 73019-2103
United States
405-325-5846 (Phone)
405-325-5842 (Fax)
HOME PAGE: http://faculty-staff.ou.edu/L/Qihong.Liu-1/
Jie Shuai
Zhongnan University of Economics and Law ( email )
182 Nanhu Ave.
East Lake High-tech Development Zone
Wuhan, Hubei 430073
Feedback to SSRN

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References:  29
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