On Transportation Cost and Product Differentiation in Hotelling’s Model ()
Abstract
We model transportation cost in Hotelling’s model as a general exponential function and analyze firms’ location choice. As a first step, we take prices as exogenous and focus on the positioning strategy of the firm whose product generates a lower net-of-price utility. We find the firm locates further away from its competitor when the transportation cost (if convex) becomes more convex and when it (if concave) becomes more concave. Minimum differentiation is obtained when the transportation cost is linear in travel distance.
Share and Cite:
Y. Li, "On Transportation Cost and Product Differentiation in Hotelling’s Model,"
Theoretical Economics Letters, Vol. 2 No. 1, 2012, pp. 75-78. doi:
10.4236/tel.2012.21014.
Conflicts of Interest
The authors declare no conflicts of interest.
References
|
[1]
|
H. Hotelling, “Stability in Competition,” Economic Journal, Vol. 39, No. 153, 1929, pp. 41-57.
doi:10.2307/2224214
|
|
[2]
|
C. D’Aspremont, J. J. Gabszewicz and J.-F. Thisse, “On Hotelling’s ‘Stability in Competition’,” Econometrica, Vol. 47, No. 5, 1979, pp. 1145-1150.
|
|
[3]
|
J.-F. Thisse, and X. Vives, “On the Strategic Choice of Spatial Price Policy,” American Economic Review, Vol. 78, No. 1, 1988, pp. 122-137.
|
|
[4]
|
A. Downs, “An Economic Theory of Democ-racy,” Harper and Brothers, New York, 1957.
|
|
[5]
|
S. Ansola-behere and J. M., Snyder, “Valence Politics and Equilibrium in Spatial Election Models,” Public Choice, Vol. 103, No. 3-4, 2000, pp. 327-336.
doi:10.1023/A:1005020606153
|
|
[6]
|
M. Dix and R. Santore, “Candidate Ability and Platform Choice,” Economics Letters, Vol. 76, No. 2, 2002, pp. 189-194. doi:10.1016/S0165-1765(02)00047-2
|