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We show that the entry of a second firm in a horizontally differentiated market ala Hotelling may harm consumers as prices increase and consumer-s surplus possibly decrease. We first derive the price and the consumer-s surplus of a monopoly which is located at the center of the market. When a second firm enters the market the first firm repositions and the two firms locate at their equilibrium points. Although competition adds to variety and increases consumer-s surplus, the post entry increase in price may outweight the gains from extra variety and make consumers worse off.

Item Type: MPRA Paper -

Original Title: Firm entry, product repositioning and welfare-

Language: English-

Keywords: Horizontal differentiation, welfare analysis, product repositioning-

Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect MarketsD - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market ImperfectionD - Microeconomics > D6 - Welfare Economics > D60 - General-

Autor: Zacharias, Eleftherios


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