Nash Equilibrium in Duopoly with Products Defined
by Two Characteristics
by
Nicholas Economides
Abstract
This article analyzes the analogue of Hotelling's duopoly model
when products are defined by two characteristics. Using the
assumptions of the original model of Hotelling, we show that demand
and profit functions are continuous for a wide class of utility
functions. When cooperative equilibrium in prices exists for all
symmetric locations of firms. This is in contrast to the result in
the one-characteristic model where a noncooperative equilibrium
exists only when products are very different. The noncooperative
equilibria are calculated and fully characterized. In contrast
with the one-dimensional model of Hotelling, where equilibrium
prices were constant irrespective of distance (of symmetric
locations), here equilibrium prices tend to zero as the distance
between products approaches zero.
Published in Rand Journal of Economics, vol. 17, no. 3, (Autumn 1986).
Stern School of Business, New York, NY 10012, tel. (212) 998-0864,
fax (212) 995-4218, e-mail:
neconomi@stern.nyu.edu, www:
http://raven.stern.nyu.edu/networks/
in Acrobat format. If you do not have an Acrobat reader, you
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