PRODUCT DIFFERENTIATION AND CARTEL STABILITY - CHAMBERLIN VERSUS HOTELLING

This paper contrasts the implications, for cartel stability, of the no nspatial ('Chamberlinian') and the spatial ('Hotelling') models of pro duct differentiation. Using the special case of a linear demand framew ork, we show that whereas the former approach suggests that cartel sta bility is non-monotonic but predictable in the degree of differentiati on, the outcome is very much more ambiguous when the latter formulatio n is employed. We examine also the implications for stability when dem and shocks occur, and show that even in the case of linear demand, whe n differentiation is modelled in spatial terms the results are consist ent with non-linear non-spatial demand functions, as well as with thos e obtained in more complicated models of firm behaviour.