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Frontiers of Economics in China

Front. Econ. China    2019, Vol. 14 Issue (4) : 497-535
Orginal Article
Multi-Dimensional Product Differentiation
Qihong Liu1(), Jie Shuai2()
1. Department of Economics, University of Oklahoma, Norman, OK 73019, USA
2. Wenlan School of Business, Zhongnan University of Economics and Law, Wuhan 430073, China
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We analyze product differentiation in a multi-dimensional model with non-uniform consumer distribution. The level of product differentiation is measured by both unit transport costs and firms’ locations. Our analysis concerns both measures. First, fixing firms’ locations, we show that equilibrium prices can increase or decrease with unit transport costs. The overall result depends on the interplay of a shifting effect and a rotating effect—the latter exists only in multi-dimensional models. Second, fixing unit transport costs, we find that under non-uniform distribution, there may exist no equilibrium where firms maximize differentiation on one dimension but minimize differentiation on other dimensions. Instead, there may exist an equilibrium where firms choose intermediate locations, contrary to common findings in existing studies which assume uniform distribution.

Keywords multi-dimensional model      product differentiation      unit transport costs      location choice      consumer distribution     
Issue Date: 17 January 2020
 Cite this article:   
Qihong Liu,Jie Shuai. Multi-Dimensional Product Differentiation[J]. Front. Econ. China, 2019, 14(4): 497-535.
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