Analytical solution of a multi-dimensional Hotelling model with quadratic transportation costs

Hernn Larralde, Juliette Stehl and Pablo Jensen

Regional Science and Urban Economics, 2009, vol. 39, issue 3, 343-349

Abstract: We present an analytical solution to the two-dimensional two-stage Hotelling model with quadratic transportation costs. We assume that consumers' choice is tempered by a logit function, which characterizes consumers' heterogeneity. As in the one-dimensional case, stores aggregate spatially when consumers' heterogeneity is strong enough. When it decreases, we show that stores differentiate in only one dimension. The analytical solution allows us to give a precise interpretation of this effect through the comparison of consumers' elasticity under differentiation along one or two characteristics. Finally, we extend our results to a hypercube of any dimension.

Keywords: Spatial; competition; Minimum; differentiation; Consumer; heterogeneity; Analytical; solution (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:39:y:2009:i:3:p:343-349

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