Product Differentation with Bimodal Consumer Preference Distributions
Date of Award
2011
Document Type
Thesis
Degree Name
Bachelors
Department
Social Sciences
First Advisor
Coe, Richard
Keywords
Product Differentiation, Hotelling, Consumer Preferences, Transportation Costs, Reservation Prices, Bimodal Distribution
Area of Concentration
Economics
Abstract
Common in the product differentiation literature is the assumption of a uniform consumer preference distribution; however this assumption results in outcomes that overstate differentiation effects. This thesis examines several bimodal consumer preference distributions and finds that firms have an incentive to locate where there are high concentrations of consumers along the preference distribution for particular product characteristics. The firms' location and pricing decisions, and the relative strength of the firms in these decisions, is highly dependent upon the degree of concentration or diffusion of consumer preferences for the product characteristic in question. Transportation costs and reservation prices are the main mechanisms through which this process happens. Not surprisingly, this does not conform to the traditional models that entail the principle of minimum or maximum product differentiation. This thesis examines how the structures of a bimodal distribution itself -- the peaks, tails, and trough -- impact the power firms have in a market, and the relative pricing and location decisions that will most likely result in the best profit maximizing choice for firms.
Recommended Citation
Willis, Regina, "Product Differentation with Bimodal Consumer Preference Distributions" (2011). Theses & ETDs. 4527.
https://digitalcommons.ncf.edu/theses_etds/4527
Rights
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