The Max-Min-Min Principle of Product Differentiation

Asim Ansari, Nicholas S. Economides () and Joel Steckel
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Asim Ansari: Graduate School of Business, Columbia University
Joel Steckel: Stern School of Business, New York University

Industrial Organization from EconWPA

Abstract: We analyze two and three-dimensional variants of Hotelling's model of differentiated products. In our setup, consumers can place different importance on each product attribute; this is measured by a weight in the disutility of distance in each dimension. Two firms play a two-stage game; they choose locations in stage 1 and prices in stage 2. We seek subgame-perfect equilibria. We find that all such equilibria have maximal differentiation in one dimension only; in all other dimensions, they have minimum differentiation. An equilibrium with maximal differentiation in a certain dimension occurs when consumers place sufficient importance (weight) on that attribute. Thus, depending on the importance consumers place on each attribute, in two dimensions there is a max-min equilibrium, a min-max equilibrium, or both. In three dimensions, depending on the weights, there can be a max-min-min equilibrium, a min-max-min equilibrium, a min-min-max equilibrium, any two of them, or all three.

JEL-codes: L (search for similar items in EconPapers)
Date: 1997-02-05
Note: Type of Document - PDF/PostScript; prepared on IBM; to print on HP; pages: 36; figures: included at the end. forthcoming, Journal of Regional Science (1997)
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Related works:
Working Paper: The Max-Min-Min Principle of product Differentiation (1996)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpio:9702001

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