A LOCATION MODEL WITH PREFERENCE FOR VARIETY

Authors: KIM, HYUNHO¹; SERFES, KONSTANTINOS²

Source: Journal of Industrial Economics, Volume 54, Number 4, December 2006 , pp. 569-595(27)

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Abstract:

We propose a new location model where consumers are allowed to make multiple purchases (i.e., one unit from each firm). This model may fit many markets (e.g. newspapers, credit cards) 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. If firms are allowed to choose their locations on the interval, then spatial differentiation may not be maximal and in some cases it may even be minimal. Thus, under certain conditions, we restore Hotelling's Principle of Minimum Differentiation.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1467-6451.2006.00300.x

Affiliations: 1: Science & Technology Policy Institute, Speciality Construction Center 26F Shindaebang-dong, Dongjak-gu, Seoul 156-714, Korea., Email: hyunkim@stepi.re.kr. 2: Department of Economics and International Business, Bennett S. LeBow College of Business, Drexel University, Matheson Hall, 32nd and Market Streets, Philadelphia, 19104., Email: ks346@drexel.edu.

Publication date: 2006-12-01