The Max-Min-Min Principle of Product Differentiation

36 Pages Posted: 1 Feb 1997

See all articles by Asim Ansari

Asim Ansari

Columbia Business School - Marketing

Nicholas Economides

New York University - Leonard N. Stern School of Business - Department of Economics

Joel Steckel

New York University (NYU) - Department of Marketing

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Abstract

We analyze two- and three-dimensional variants of Hotelling's model of differentiated products. In our setup, consumers can place different importance on each product attribute; this is measured by a weight in the disutility of distance in each dimension. Two firms play a two-stage game; they choose locations in stage 1 and prices in stage 2. We seek subgame- perfect equilibria. We find that all such equilibria have maximal differentiation in one dimension only; in all other dimensions, they have minimum differentiation. An equilibrium with maximal differentiation in a certain dimension occurs when consumers place sufficient importance (weight) on that attribute. Thus, depending on the importance consumers place on each attribute, in two dimensions there is a max-min equilibrium, a min-max equilibrium, or both. In three dimensions, depending on the weights, there can be a max-min- min equilibrium, a min-max-min equilibrium, a min-min-max equilibrium, any two of them, or all three.

JEL Classification: C72, D21, D43, L43, M31

Suggested Citation

Ansari, Asim and Economides, Nicholas and Steckel, Joel, The Max-Min-Min Principle of Product Differentiation. Available at SSRN: https://ssrn.com/abstract=1742 or http://dx.doi.org/10.2139/ssrn.1742

Asim Ansari

Columbia Business School - Marketing ( email )

New York, NY 10027
United States

Nicholas Economides (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

44 West 4th Street
New York, NY 10012
United States
212-998-0864 (Phone)
212-995-4218 (Fax)

HOME PAGE: http://www.stern.nyu.edu/networks/

Joel Steckel

New York University (NYU) - Department of Marketing ( email )

Tisch Hall
40 W 4 St.
New York, NY 10012
United States
2129980521 (Phone)

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