Econometrica: Jul 1985, Volume 53, Issue 4

The Principle of Minimum Differentiation Holds under Sufficient Heterogeneity

https://doi.org/0012-9682(198507)53:4<767:TPOMDH>2.0.CO;2-N
p. 767-782

A. de Palma, J.-F. Thisse, V. Ginsburgh, Y. Y. Papageorgiou

The so-called Principle of Minimum Differentiation, stated by Hotelling, has been challenged by many authors. This paper restores the Principle by showing that n firms locate at the center of the market and charge prices higher than the marginal cost of production when heterogeneity in consumers' tastes is "large enough."

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