A Note on Product Differentiation under Concave Transportation Costs

Carmen Arguedas and Hamid Hamoudi ()

Cuadernos de Economía - Spanish Journal of Economics and Finance, 2008, vol. 31, issue 85, 091-106

Abstract: Concavity of transportation costs has been rarely considered in the linear model of product differentiation, although it seems a reasonable assumption in many contexts. In this paper, we extend the results by Gabszewicz and Thisse (1986) about the existence of the sequential first-location-then-price equilibrium to the case where transportation costs are concave in distance. Thus, there exists a unique sequential equilibrium in the model of vertical differentiation which involves maximal differentiation, while the sequential equilibrium under horizontal differentiation fails to exist. In this latter case, under given locations, firms need not be sufficiently far from each other for a price equilibrium to exist. In fact, a possible equilibrium involves both firms being located near one extreme of the city. In that case, the demand of the furthest firm is non-connected.

Keywords: Hotelling; product differentiation; concave transportation costs; nonconnected demand (search for similar items in EconPapers)
JEL-codes: C72 D43 (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations:

Downloads: (external link)
https://repositorio.uam.es/bitstream/handle/10486/4498/29978_85_04.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cud:journl:v:31:y:2008:i:85:p:091-106

Access Statistics for this article

More articles in Cuadernos de Economía - Spanish Journal of Economics and Finance from Asociación Cuadernos de Economía
Bibliographic data for series maintained by Erick Tinsson ().