A Location Model with Preference for Variety

29 Pages Posted: 28 Nov 2005

See all articles by Hyunho Kim

Hyunho Kim

Science & Technology Policy Institute

Konstantinos Serfes

Drexel University

Abstract

We propose a new location model where consumers are allowed to make multiple purchases (i.e., one unit from each firm). This model may fit many markets (e.g., newspapers, credit cards) better than existing models. A common feature of these markets is that some consumers are loyal to one brand, while others consume more than one product. Our model yields predictions consistent with this observation. If firms are allowed to choose their locations on the interval, then spatial differentiation may not be maximal and in some cases it may even be minimal. Thus, under certain conditions, we restore Hotelling's Principle of Minimum Differentiation.

Keywords: Hotelling model, Minimum differentiation, Multiple purchases

JEL Classification: D43, L10

Suggested Citation

Kim, Hyunho and Serfes, Konstantinos, A Location Model with Preference for Variety. Journal of Industrial Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=856144

Hyunho Kim

Science & Technology Policy Institute ( email )

Seoul
Korea

Konstantinos Serfes (Contact Author)

Drexel University ( email )

3220 Market Street
Philadelphia, PA 19104
United States
215-895-6816 (Phone)
215-571-4670 (Fax)

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