No.869 Does the Product Characteristic Distance Get Closer or Not? Differentiation and Imitation in a Hotelling Model
Is the distance between the product characteristics of firms in an industry getting closer or not in competition? Although many studies have been conducted on differentiation to get farther and imitation to get closer, neither has been analyzed within the same framework. Therefore, this study introduces the concept of imitation into a Hoteling model on differentiation. We show that although firms are more profitable if they maintain differentiation, they face a prisoner’s dilemma in imitation and therefore try to imitate from each other as much as possible, which decreases their profits. As a result, competition brings the distance closer by imitation and promotes the standardization of product characteristics in that industry.
Keywords: Hotelling model, differentiation, imitation, standardization
JEL code: D21, L13
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