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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26252
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| Title: | The Max-Min-Min Principle of Product Differentiation |
| Authors: | Economides, Nicholas
Ansari, Asim
Steckel, Joel |
| Issue Date: | Nov-1998 |
| Series/Report no.: | EC-96-10 |
| 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. |
| URI: | http://hdl.handle.net/2451/26252 |
| Appears in Collections: | Economics Working Papers
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