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A Location Model with Preference for Variety

Konstantinos Serfes () and Hyunho Kim

No 127, Econometric Society 2004 North American Summer Meetings from Econometric Society

Abstract: We propose a new location model where consumers are allowed to make multiple purchases (i.e., one unit from each firm). This model fits many markets (e.g. newspapers, credit cards, scholarly journals, subscriptions to TV channels, etc.) better than existing models. A common feature of these markets is that some consumers are loyal to one brand, while others consume more than one product. Our model yields predictions consistent with this observation. Moreover, it restores Hotelling's Principle of Minimum Differentiation, by generating an equilibrium in pure strategies and with a linear transportation cost, where firms are located at the center and charge prices above marginal cost

Keywords: Hotelling model; Horizontal differentiation; Preference for variety (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-ure
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Journal Article: A LOCATION MODEL WITH PREFERENCE FOR VARIETY* (2006) Downloads
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