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Product Design Competition Under Different Degrees of Demand Ambiguity

T. Florian Kauffeldt () and Boris R. Wiesenfarth ()
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T. Florian Kauffeldt: University of Heidelberg
Boris R. Wiesenfarth: University of Heidelberg

Review of Industrial Organization, 2018, vol. 53, issue 2, No 6, 397-420

Abstract: Abstract Product differentiation decisions are frequently made under imperfect probabilistic information about consumer tastes (demand ambiguity). We investigate a Hotelling duopoly game of product-design-then-price choices that incorporates demand ambiguity. Our model allows for different levels of demand ambiguity. We find that the impact of ambiguity on product differentiation depends on firms’ ambiguity attitudes. Furthermore, our model generalizes the probabilistic model of Meagher and Zauner (J Econ Theory 117:201–216, 2004) and the non-probabilistic model of Krol (Int J Ind Org 30:593–604, 2012).

Keywords: Ambiguity; Choquet-expected utility; Hotelling; Product differentiation (search for similar items in EconPapers)
JEL-codes: C72 D43 D81 L13 R32 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s11151-018-9620-5

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Handle: RePEc:kap:revind:v:53:y:2018:i:2:d:10.1007_s11151-018-9620-5