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Product differentiation and cartel stability: Chamberlin versus Hotelling

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  • R. Rothschild

    (The Management School, Lancaster University, Lancaster LA1 4YX, UK)

Abstract

This paper contrasts the implications, for cartel stability, of the non-spatial (`Chamberlinian') and the spatial (`Hotelling') models of product differentiation. Using the special case of a linear demand framework, we show that whereas the former approach suggests that cartel stability is non-monotonic but predictable in the degree of differentiation, the outcome is very much more ambiguous when the latter formulation is employed. We examine also the implications for stability when demand shocks occur, and show that even in the case of linear demand, when differentiation is modelled in spatial terms the results are consistent with non-linear non-spatial demand functions, as well as with those obtained in more complicated models of firm behaviour.

Suggested Citation

  • R. Rothschild, 1997. "Product differentiation and cartel stability: Chamberlin versus Hotelling," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 31(3), pages 259-271.
    • Handle: RePEc:spr:anresc:v:31:y:1997:i:3:p:259-271
    Note: Received: April 1995 / Accepted in revised form: October 1996
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    Cited by:

    1. Hui Wen Cheng & Chin Wei Yang, 2013. "Some Taxation Theorems in the Hotelling Model," Australian Economic Papers, Wiley Blackwell, vol. 52(3-4), pages 143-158, December.
    2. Posada, Pedro, 2001. "Leadership Cartels in Industries with Differentiated Products," Economic Research Papers 269361, University of Warwick - Department of Economics.
    3. Florian Gössl & Alexander Rasch, 2020. "Collusion under different pricing schemes," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(4), pages 910-931, October.
    4. Yiquan Gu & Alexander Rasch & Tobias Wenzel, 2016. "Price-sensitive demand and market entry," Papers in Regional Science, Wiley Blackwell, vol. 95(4), pages 865-875, November.
    5. Posada, P., 2000. "Cartel Stability and Product Differentiation: How Much Do the Size of the Cartel and the Size of the Industry Matter?," The Warwick Economics Research Paper Series (TWERPS) 556, University of Warwick, Department of Economics.
    6. Rasch, Alexander & Gössl, Florian, 2016. "The scope for collusion under different pricing schemes," VfS Annual Conference 2016 (Augsburg): Demographic Change 145759, Verein für Socialpolitik / German Economic Association.
    7. Petrikaitė, Vaiva, 2016. "Collusion with costly consumer search," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 1-10.
    8. Rasch, Alexander & Herre, Jesko, 2013. "Customer-side transparency, elastic demand, and tacit collusion under differentiation," Information Economics and Policy, Elsevier, vol. 25(1), pages 51-59.
    9. Posada, Pedro, 2000. "Cartel Stability and Product Di¤erentiation: How Much Do the Size of the Cartel and the Size of the Industry Matter?," Economic Research Papers 269307, University of Warwick - Department of Economics.
    10. Posada, P., 2001. "Leadership Cartels in Industries with Differentiated Products," The Warwick Economics Research Paper Series (TWERPS) 590, University of Warwick, Department of Economics.
    11. Andaluz, Joaquín, 2010. "Cartel sustainability with vertical product differentiation: Price versus quantity competition," Research in Economics, Elsevier, vol. 64(4), pages 201-211, December.

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