Differentiation on Demand: How Consumer Preferences Shape Product Variety in Hotelling Duopoly
Description
In this paper, a novel model of Hotelling duopoly is introduced that explains horizontal product variety as the result of consumer preferences, expanding on and meshing the works of Hotelling (1929) and Neven (1985). From this model, two opposing forces from consumer preferences are found that impact the variety and price decisions of firms: market share revenues and price revenues. As firms face consumers with highly linear (weak) preferences over variety, the profit incentive is to simply capture the market by offering products that appeal to the middle consumer. However, as firms face consumers with highly quadratic (strong) preferences over variety, the profit incentive is to carve out and exploit a market segment by offering a distinct variety. Thus, observed product variety between minimal and maximal differentiation is emergent from consumer preferences, as firms face a balance of price and market share incentives.
Date Created
The date the item was original created (prior to any relationship with the ASU Digital Repositories.)
2024-05
Agent
- Author (aut): Malaki, Adam
- Thesis director: Leiva Bertran, Fernando
- Committee member: Hanemann, Michael
- Contributor (ctb): Barrett, The Honors College
- Contributor (ctb): School of Mathematical and Statistical Sciences
- Contributor (ctb): Economics Program in CLAS
- Contributor (ctb): School for the Future of Innovation in Society