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Equilibrium with Product Differentiation

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  • Jeffrey M. Perloff
  • Steven C. Salop

Abstract

A model of product differentiation which combines elements of both spatial and representative consumer formulations is used to examine the properties of single- and multiple-price equilibria. Conditions under which decreases in the intensity of consumer preferences reduce price are given. It is shown that, with certain types of demand curves, entry can eliminate price-cost markups even given product differentiation. If competition is localized, it is demonstrated that entry does not affect the markup. Finally, the effect of spurious product differentiation on price is examined.

Suggested Citation

  • Jeffrey M. Perloff & Steven C. Salop, 1985. "Equilibrium with Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(1), pages 107-120.
    • Handle: RePEc:oup:restud:v:52:y:1985:i:1:p:107-120.
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    File URL: http://hdl.handle.net/10.2307/2297473
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    References listed on IDEAS

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    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(2), pages 217-235.
    2. Michael Sattinger, 1984. "Value of an Additional Firm in Monopolistic Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(2), pages 321-332.
    3. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 493-510.
    4. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    5. Joan Robinson, 1934. "What is Perfect Competition?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 49(1), pages 104-120.
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