- A DIFFICULTY WITH THE ADDRESS MODELS OF PRODUCT DIFFERENTIATION

Martin Peitz

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

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; heterogenous income (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Pages: 14 pages
Date: 1998-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published by Ivie

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http://www.ivie.es/downloads/docs/wpasad/wpasad-1998-21.pdf Fisrt version / Primera version, 1998 (application/pdf)

Related works:
Journal Article: A difficulty with the address models of product differentiation (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:1998-21

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