On the Hotelling Principle of Minimum Differentiation: Imitation and Crowd

14 Pages Posted: 27 Apr 2006

See all articles by Marco Di Cintio

Marco Di Cintio

University of Salento - Department of Economics and Mathematics and Statistics

Date Written: March 2, 2006

Abstract

This paper investigates on price competition in the Hotelling location model with linear transportation costs when consumer preferences are affected by the number of consumers shopping at the same store. A consumption externality permits to consider the imitation and the congestion effects which are opposite forces at work.

The coexistence of both effects confers new validity to the principle of minimum differentiation as it was in the original Hotelling model. I show that firms do not need to set apart in order to earn higher profits. The results show firms endogenously choose to locate in the center of the interval sharing the market with positive prices.

Keywords: Product Differentiation, Hotelling, Externality, Imitation, Crowd

JEL Classification: D11, D62, L11, L13

Suggested Citation

Di Cintio, Marco, On the Hotelling Principle of Minimum Differentiation: Imitation and Crowd (March 2, 2006). University of Lecce Economics Working Paper No. 82/39, Available at SSRN: https://ssrn.com/abstract=897661 or http://dx.doi.org/10.2139/ssrn.897661

Marco Di Cintio (Contact Author)

University of Salento - Department of Economics and Mathematics and Statistics ( email )

Piazza Tancredi, n7
Lecce, 73100
Italy

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