Recovering the Principle of Minimum Differentiation. An Iceberg Approach

José M. Usategui and Xavier Martínez-Giralt
Authors registered in the RePEc Author Service: Xavier Martinez-Giralt

No 1052, Working Papers from Barcelona School of Economics

Abstract: The clustering of competitor outlets is a pervasive phenomenon in our cities. However, Hotelling's principle of minimum differentiation is well-known not to hold. The attempts to modify Hotelling's model are numerous in the literature on spatial competition, but mostly unsuccessful. We provide a new approach by endogenizing the transportation cost. In particular, we inherit a modeling technique from the literature of international trade. This is the iceberg formulation. With it, we are able to give a rationale to the agglomeration of firms in the middle of a Hotelling linear market.

Keywords: iceberg transport costs; principle of minimum differentiation; hotelling (search for similar items in EconPapers)
JEL-codes: D42 L12 R32 (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-ure
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