Social interactions, product differentiation and discontinuity of demand

Fernando Pigeard de Almeida Prado, Vladimir Belitsky and Alex Ferreira

Journal of Mathematical Economics, 2011, vol. 47, issue 4-5, 642-653

Abstract: We propose a discrete choice model of socially interacting consumers choosing between two product variants. The model shows that the discontinuity of demand as well as the demand polarization proposed by Becker (1991), A Note on Restaurant Pricing and Other Examples of Social Influences on Price, depend crucially on the heterogeneity of consumers’ preferences and on the level of product differentiation. When the two products are sufficiently similar, it turns out that the market is shared asymmetrically as suggested by Becker (1991). By contrast, when the products are different and the preferences of the consumers are sufficiently heterogeneous, the market is shared symmetrically as in Hotelling’s (1929) model.

Keywords: Social interactions; Heterogeneity; Product differentiation; Multiple market equilibria; Discontinuity of demand (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:47:y:2011:i:4:p:642-653

DOI: 10.1016/j.jmateco.2011.09.003

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