An experimental study on multi-dimensional spatial product differentiation

Przemysław Kusztelak

No 2011-11, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: This study presents the results of an experiment on spatial differentiation of products in Hotelling-type models with different grades of complexity for companies’ choices of space. Three models were compared, including models with a single decision variable (single-dimensional space with automatically calculated prices), two decision variables (single-dimensional space with prices assigned by the participants) and three decision variables (bi-dimensional space with prices assigned by the participants). The research revealed that in more complex conditions, the product differentiation was smaller and that the prices were lower than in a simple environment when the Nash equilibrium was confirmed. Companies that function in complex conditions do not take advantage of the opportunity to make high profits based on product differentiation. This has a greater impact on price rigidity with respect to product variety than could be theoretically predicted. Strategies based on product differentiation are, therefore, less profitable than expected based on theoretical predictions.

Keywords: spatial competition; product differentiation; laboratory experiments (search for similar items in EconPapers)
JEL-codes: C72 C92 D43 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2011
New Economics Papers: this item is included in nep-com, nep-exp and nep-geo
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http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP51.pdf First version, 2011 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2011-11

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