DP3031 The Importance of the Distribution of Consumers in Horizontal Product Differentiation

Author(s): Antoni Calvó-Armengol, Yves Zenou
Publication Date: October 2001
Keyword(s): hotelling, market equilibrium, social optimism
JEL(s): D43, L12, R32
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3031

This Paper examines the importance of the distribution of consumers in Hotelling's circle on the comparison between the optimal and the market equilibrium levels of diversity. It finds that when most consumers are located very close to the firms, the result of Salop that the equilibrium number of firms is larger than the optimal one (surplus maximizing) can be reversed.