Horizontally Differentiated Market, Part 1: Deriving the Demand Curve

[@amdadulhaque8582]

Fantastic video great help

[@MattBirch]

Glad to hear it! Good luck.

[@umbertociceri4234]

Amazing explanation thank you! What would happen if there was also the possibility of not buying with net utility of 0?

[@MattBirch]

On a case like that, you consider your best outcome like this with the best outside option (0). In other words, you see which makes you happier and choose that one. That will mean people far enough away will not buy anything. Find the threshold x between buyers and non buyers and go from there.

[@4nimaMundi]

If firm A where to be locate at 0.2 and both firms choose prices simultaneously, knowing where tho other is located. What location and price would firm B choose?

[@MattBirch]

To solve a question like that, you would first need to solve for their prices as functions of locations. That is what I do in this video, only one of your locations is already chosen, which simplifies it. Once you have price functions, as functions of locations, you can create profit functions that are functions of only location. Firm B would then choose location to maximize profit by setting dprofit/dlocation=0. Hope that helps. Sounds like some tough homework. Good luck!

[@4nimaMundi]

@@MattBirch Thanks a lot Matt, it certainly was helpful. Indeed tough homework :,(

[@ashwinvarma8878]

hat would happen if the distribution of consumers over the space was was non-uniform (e.g. bimodal around 0, 1)?

[@MattBirch]

That changes some of your setup but none of the intuition. Consumers still buy from the firm that gives the highest net utility. Assuming your consumers are identical in every way except location, every consumer at each location will choose the same firm. If firms have to choose location, then in equilibrium, neither firm can improve profit by shifting left or right.

[@ashleyfratesi8050]

what if a=0, b>.5 t=2 c=0 for both firms.

[@MattBirch]

I think we might be using different notation. I don't even have some of those variables in my model.

[@krishnadayma5209]

Consider the Hotelling Model of Product Differentiation for a duopoly when the price is set exogenously by a regulator. Consumers incur quadratic transport costs. In this environment, what degree of product differentiation would you expect to arise? Explain your answer fully. Can you please explain this question?

[@MattBirch]

Sounds like a tricky assignment. It is 90-something-percent the same. The only difference is that instead of choosing (differentiating with respect to) prices, firms will be choosing (differentiating with respect to) quantities. Good luck!