A difficulty with the address models of product differentiation

Martin Peitz

Economic Theory, 1999, vol. 14, issue 3, 717-727

Abstract: In models of product differentiation and location models it is implicitly assumed that consumers can afford to buy the differentiated goods in the market. I show that with income heterogeneity there are severe existence problems of a price equilibrium in models of horizontal product differentiation with unit demand because some consumers are income-constrained. The result generalizes to other models of product differentiation, search, and switching costs. I present an alternative specification of variable individual demand in which this kind of existence problem cannot arise.

Keywords: Product differentiation; Unit demand; Heterogeneous income; Discrete choice. (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Date: 1999-10-14
Note: Received: October 17, 1997; revised version: February 20, 1998
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Citations: View citations in EconPapers (3)

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Working Paper: - A DIFFICULTY WITH THE ADDRESS MODELS OF PRODUCT DIFFERENTIATION (1998)
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