On Transportation Cost and Product Differentiation in Hotelling’s Model

DOI: 10.4236/tel.2012.21014   PDF   HTML   XML   5,037 Downloads   9,475 Views   Citations


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.

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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.


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