( Matt Shum HSS, California Institute of Technology)Lecture 8: Product Di erentiation 5 / 22. Each of these … The Dixit-Stiglitz (1977) model of exogenous differentiation. Price discrimination in the Hotelling set-up. 1 Spatial Competition 1.1 The linear city (Hotelling, 1929) • Linear … EspÃnola-Arredondo, Ana & Zhao, Huan, 2012. We show that when products are identical in all respects except in their environmental properties, a tax/subsidy policy performs better than the case without policy. The model of the linear city under a triangular distribution of consumers: an empirical analysis on price and location of beverage kiosks in Catania Gianpiero Torrisi This version January, 2009 Abstract - This paper presents a model of oligopolistic competition under horizontal differentiation of products and a triangular distribution of consumers. Consumers are assumed to be distributed uniformly along the linear city and prices are constant and equal between the two shops. Example: New BMWs vs used Toyota Corollas o Products and Characteristics Products are bundles of characteristics Consumers have preferences for different characteristics. Vertical product differentiation Models in which all consumers prefer the … • Each firm competes with all other firms in this model. Otherwise, the first firm is still a monopolization in this linear city. Fax: 509 335 1173. Based on Hotelling’s linear city model, we attempt to generalize models in past studies by encompassing asymmetric base positions and asymmetric cost-efficiency in repositioning. Examples of location models include Hotelling’s Location Model, Salop’s Circle Model, and hybrid variations. In traditional economic models, consumers display preference given the constraints of a … Consider Hotelling's model (a street of length one, consumers … This paper investigates a spatial competition model of product differentiation. Keywords: agglomeration, linear city, location, principle of minimum differentiation ... Hotelling’s linear city model. Imagine a town with a Main Street of length 1. City, what we called city, can be interpreted as the preference space of consumers. We briefly … The triangular distribution aims to represent a case of … linear and circular product spaces. Email: liyouping@ecust.edu.cn . Entry: is there enough room for di erentiation so that a rm could enter pro tably Advertising: advertising is a powerful marketing strategy to cre-ate di erentiation in the consumers’ perception about products Bernard Caillaud Product di … 17(4), pages 461-477, August. Keywords: location-price model, mill pricing, location … The Linear City Model: This is the basic model of horizontal product diﬀerentiation where the prod-ucts are separated on one (horizontal) dimension or attribute. We analyze a Hotelling's linear city model where final products by two firms are symmetric in all dimensions except for the externality their production process generates. • Bertrand Model of Price Competition • Cournot Model of Quantity Competition • Product Differentiation • Dynamic Competition • Capacity Constraints • Endogenous Entry • Repeated Interaction Advanced Microeconomic Theory 2 . Introduction Introduction Michael Porter (Competitive advantage, 1986) Competitive advantage stems from the many discrete ac-tivities a ﬁrm performs in designing, producing, market-ing, delivering and supporting its product. A consumer … Youping Li . Our efficiency comparisons suggest that under a setting of horizontal product differentiation a tax/subsidy (either on consumers or polluting ?firms) … Horizontal product differentiation Models in which different consumers prefer different products. Price discrimination in the Hotelling set-up. 98 Application. Transportation cost … We could model the demand for a product via the demand for its individual characteristics Car demand Height, weight, horse power, fuel economy, number of doors explain much of the demand-side variation in price. • The model has a unique and easily computable Nash equilibrium. Soft drinks Sugar … Despite the simplicity of this model, it is one of the first to study the trade-off between flexibility and commitment under competition à la Bertrand. Product proliferation. Firm 1’s goods are valued s 1 to the consumers, and firm 2’s goods have intrinsic value of s 2. • The analysis provides a spatial microfoundation for a linear differentiated Bertrand oligopoly. There is a linear city of length one, the [0,1] interval. If agt1, it is a linear-city model. ABSTRACT . Industrial Organization. Next week, vertical product differentiation Models in which all … Social welfare. The Salop model (circular city, equilibrium with free entry) 3 Model of vertical di erentiation Marc Bourreau (TPT) Lecture 04: Product di erentiation 2 / 43. Product differentiation; Linear city model; Circular city model; Shaked-Sutton model ; Salop’s circular city model is a variant of the Hotelling’s linear city model. It was developed as a (spatial) model of location choice by Hotelling (1929) and has been co-opted by several distinct areas in economics. There are two firms which sell a kind of goods. I will not give you more practice problems later on. EC 105. Tel: 509 335 8494. Two taxes can yield different location patterns under cost heterogeneity among firms. And then, consumer location represents individual preferences for each consumer. Consumers located on the street with uniform density, ie., there are 0.25 \consumers" living between 0 and 0:25. Horizontal product differentiation Models in which different consumers prefer different products. Product differentiation Key ideas: modeling characteristic space as a location choice, principle of maximum separation, free entry, representative agent model In section 8.2 we consider a pricing game between two firms producing products that are substitutes. Two pizza places located at … It is shown that managerial delegation strongly affects firms’ location/product differentiation choice, both in the simultaneous and sequential moves in one of the three‐stage location‐incentive‐pricing game … Topic: Hotelling’s model and product differentiation VERY IMPORTANT : do not look at the answers until you have made a VERY serious effort to solve the problem. firm and the group with product differentiation and selling costs, excess capacity under monopolistic and imperfect competition, criticism of monopolistic competition; Oligopoly in a game theoretic approach - Cournot-Nash equilibrium; Bertrand model; Product differentiation- Linear City Model; Dynamic game: Backward induction, Subgame perfect equilibrium; Repeated Interaction: Finitely and infinitely repeated … (essentially the same model as (1)). "Environmental policy in a linear city model of product differentiation," Environment and Development Economics, Cambridge University Press, vol. Choice of products: rms choose how to di erentiate from rivals, this impacts the type of products that they choose to o er and the diversity of products that consumers face. 300 … At the final stage, if the second firm enters this market, the corresponding market is the duopoly with horizontal product differentiation in the linear city. The main result of this study shows that … Linear City Competition with Heterogeneous Product Values* Ick-Hyun Nam** We study a model in which a linear city of length 1 exists along the abscissa of a line (0 ≤ x ≤ 1), and consumers are uniformly distributed with density 1 along this interval. Let be the set of the firms in this model. We develop a three stage complete information game, using the Hotelling?s linear city model. Social welfare. In this paper, we analyze a spatial Bertrand oligopoly … The classic example is ice‐cream vendors locating near one another on a beach. THE MODEL OF THE LINEAR CITY UNDER TRIANGULAR DISTRIBUTION OF CONSUMERS Gianpiero TORRISI Newcastle University, Centre for Urban and Regional Development Studies, NE1 7RU, Newcastle, United Kingdom Gianpiero.torrisi@ncl.ac.ukt Abstract This paper presents a model of oligopolistic competition in presence of horizontal differentiation of goods, under a triangular distribution of … This paper applies an unconstrained Hotelling linear city model to study the effects of managerial delegation on the firms’ location/product differentiation level in a duopoly industry. The basic result is that the two shops’ profits are identical at a Nash equilibrium because the best strategy … The Hotelling (1929) linear-city model with location choice. population, i.e. location choice in a model of product differentiation, which includes Hotelling (linear-city) and Vickrey-Salop (circular-city) spatial models as special cases. product differentiation based on a location model in which a linear city of length 1 is assumed and a duopoly game is played by two shops located along the linear city. We investigate how unit (or specific) tax and ad valorem tax affect equilibrium location choice in a model of product differentiation, which includes Hotelling (linear-city) and Vickrey-Salop (circular-city) spatial models as special cases. Introduction • Monopoly: a single firm • Oligopoly: a limited number of firms – When allowing for firms, the equilibrium predictions embody the results in perfectly competitive and … We also show that more inefficient trans-port technologies of upstream firms may enhance welfare. We study product repositioning between firms with predetermined base positions for their products in existing markets. In the mill pricing (shopping) location-price models, both linear-city and circular-city models yield maximal differentiation. A location (spatial) model refers to any monopolistic competition model in economics that demonstrates consumer preference for particular brands of goods and their locations. Email: anaespinola@wsu.edu HUAN ZHAO School of Economic Sciences, Washington State University, USA. Linear Hotelling model Linear Hotelling model 1 Town with just one street of length 1, along which all reside. Received October 8, 2011; revised November 15, 2011; accepted November 24, 2011. The Salop (1979) circular-city model. We find that neither tax affects equilibrium location patterns as long as each firm has the same production cost. We find that neither base products nor new products in attractive positions in the … In two‐party elections, ‘each … Traditional vs. location models. Hotelling’s Law explains why retailers and restaurants so often locate near one another. Given a constant marginal cost c, the profit of firm j is Π=−jjj() ( ) ()p pcqp, j =1, 2 . Firm location can be interpreted as the product specification. • City lengths and consumer densities need not be identical. We find that neither tax affects equilibrium location patterns as long as each firm has the same production cost. Abstract. On Transportation Cost and Product Differentiation in Hotelling’s Model . Hotelling’s product di ﬀerentiation: an inﬁnite-dimensional linear programming approach Rodrigo Peñaloza∗ Department of … PRODUCT DIFFERENTIATION AND OPTION GAMES: ... Hotelling’s linear city model is adapted, to include the tradeoff between preempting competitors under uncertainty or waiting to know where the city’s customers are. We … Hotelling’s product differentiation: an infinite-dimensional linear programming approach Rodrigo Peñaloza Economics Department, University of Brasília Economics and Politics Working Paper 72/2017 July 19th, 2017 Economics and Politics Research Group Working Paper Series . Environmental policy in a linear city model of product differentiation ANA ESP´INOLA-ARREDONDO School of Economic Sciences, Washington State University, 111C Hulbert Hall Pullman, WA 99164, USA. The first model of product differentiation is due to Hotelling (1929). If you turn to the answers to get clues or help, you are wasting a chance to test how well you are prepared for the exams. The Salop (1979) circular-city model. The Hotelling (1929) linear-city model with location choice. Product proliferation. Developed by Steven C. Salop in his article “Monopolistic Competition with Outside Goods”, 1979, this locational model is similar to its predecessor´s, but introduces two main differences: firms are located in a circle instead of a line and … There are N consumers living on this street and they are uniformly distributed along the street, that is, on a segment of the street of length x there are xN consumers (thus, if N = 900 and we take a segment of length 1/3 then on this segment lives 1/3 of the Page 1 of 3 . We show that when transport costs of upstream firms are large, higher transport costs decrease the level of product differentiation of downstream firms. • Spatial-differentiation model – Linear city (Hotelling, 1929) – Circular city (Salop, 1979) • Vertical differentiation model – Gabszwicz and Thisse (1979, 1980); – Shaked and Sutton (1982, 1983) • Monopolistic competition (Chamberlin, 1933) • Advertising and Informational product differentiation (Grossman and Shapiro, 1984) 1. Our efficiency comparisons suggest that, under a setting of horizontal product differentiation, an environmental regulation (either on polluting firms or consumers buying their products) yields higher social welfare than the absence of … A unit mass of con-sumers are uniformly distributed on … We model transportation cost in Hotelling’s model as a general exponential function and analyze firms’ … The linear model that we just examined, can be easily interpreted as a product differentiation model rather than, a model of location, a spatial model. yxop 1. Firstly, the problem of the consumers is addressed under the linear city. Two taxes can yield different location … Given this, adding product differentiation as above is a convincing extension to the location-quantity literature. 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