The Importance of the Distribution of Consumers in Horizontal Product Differentiation
Autonomous University of Barcelona - Department of Economics; Institute for the Study of Labor (IZA)
Stockholm University; Research Institute of Industrial Economics (IUI); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR)
CEPR Discussion Paper No. 3031
This Paper examines the importance of the distribution of consumers in Hotelling's circle on the comparison between the optimal and the market equilibrium levels of diversity. It finds that when most consumers are located very close to the firms, the result of Salop that the equilibrium number of firms is larger than the optimal one (surplus maximizing) can be reversed.
Number of Pages in PDF File: 17
Keywords: Hotelling, market equilibrium, social optimism
JEL Classification: D43, L12, R32working papers series
Date posted: November 15, 2001
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