Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89465
Authors: 
Mangani, Andrea
Patelli, Paolo
Year of Publication: 
2001
Series/Report no.: 
LEM Working Paper Series 2002/05
Abstract: 
We analyze two- and three-dimensional variants of Hotelling's model of differentiated products. In our setup, consumers can place different importance on each product attribute; this is measured by a weight in the disutility of distance in each dimension. Two firms play a two-stage game; they choose locations in stage 1 and prices in stage 2. We seek subgame- perfect equilibria. We find that all such equilibria have maximal differentiation in one dimension only; in all other dimensions, they have minimum differentiation. An equilibrium with maximal differentiation in a certain dimension occurs when consumers place sufficient importance (weight) on that attribute. Thus, depending on the importance consumers place on each attribute, in two dimensions there is a max-min equilibrium, a min-max equilibrium, or both. In three dimensions, depending on the weights, there can be a max-min-min equilibrium, a min-max-min equilibrium, a min-min-max equilibrium, any two of them, or all three.
Document Type: 
Working Paper

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