On Transportation Cost and Product Differentiation in Hotelling’s Model

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DOI: 10.4236/tel.2012.21014    5,460 Downloads   10,160 Views   Citations
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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.

Cite this paper

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

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