Optimal Product Variety in a Hotelling Model

Kieron Meagher

ANU Working Papers in Economics and Econometrics from Australian National University, College of Business and Economics, School of Economics

Abstract: In Hotelling style duopoly location games the product variety (or firm locations) is typically not socially optimal. This occurs because the competitive outcome is driven by the density of consumers at the margin while the socially optimal outcome depends on the whole distribution of consumer locations/tastes. We consider a natural extension of the standard model in which firms are imperfectly informed about the distribution of consumers, in particular firms are uncertain about the consumer mean. In the uniform case, as the aggregate uncertainty about the mean becomes large relative to the dispersion of consumers about the mean, competitive locations become socially optimal. A limit result on prices for discontinuous, log-concave densities shows the result will hold in a range of cases.

JEL-codes: C72 D43 D81 L10 L13 R30 R39 (search for similar items in EconPapers)
Pages: 7 Pages
Date: 2011-10
New Economics Papers: this item is included in nep-bec, nep-cis, nep-com, nep-ind, nep-mic and nep-mkt
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Journal Article: Optimal product variety in a Hotelling model (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:acb:cbeeco:2011-555

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