Location models of horizontal differentiation : a special case of vertical differentiation models

Cremer, Helmuth;Thisse, Jacques-François
(1991) The Journal of Industrial Economics — Vol. 39, n° 4, p. 383-390 (1991)

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Authors
  • Cremer, Helmuth
    Author
  • Thisse, Jacques-FrançoisUCLouvain
    Author
Abstract
We study the relationship that exists between two families of models of product differentiation: the class of location or Hotelling-type models of horizontal differentiation, and models of vertical differentiation. Our main result is that every model belonging to a very large class of Hotelling-type models (including all the commonly used specifications) is actually a special case of a vertical product differentiation model. Formally speaking this means that the Hotelling type-model and the corresponding vertical product differentiation model are equivalent. Specifically, we show that the equilibria emerging in the two categories of models are identical in a well defined sense.
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Cremer, H., & Thisse, J.-F. (1991). Location models of horizontal differentiation : a special case of vertical differentiation models. The Journal of Industrial Economics, 39(4), 383-390. https://hdl.handle.net/2078.5/32460 (Original work published 1991)