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Department of Economics, University of Oslo Memorandum

No 12/2016:
Another model of sales. Price discrimination in a differentiated duopoly market

Halvor Mehlum ()

Abstract: Using a model of horizontal differentiation where a variety dimension is added to Hotelling's (1929) "linear city" duopoly model, I show that even when costs and demand are symmetric, price discrimination may be an equilibrium phenomenon. In the model each customer have a preferred variety and a preferred firm. They have perfect information about all prices and may be induced to switch variety and firm given a sufficient price difference. Price discrimination equilibrium exists when a sufficient fraction of consumers are elastic both with respect to variety and firm.

Keywords: Duopoly; price discrimination; (follow links to similar papers)

JEL-Codes: D43; (follow links to similar papers)

18 pages, September 23, 2016

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