- TWO-STAGE MODELS OF PRODUCT DIFFERENTIATION WITH UNIT-ELASTIC DEMAND

Models of product differentiation try to provide answers to the question which good will be provided in an imperfectly competitive market and how it will be priced. In such models consumers have been modeled as buying one unit of one good in the market. I construct counterparts to frequently used models of product differentiation in which consumers have unit-elastic demand, provide conditions which guarantee the existence of a unique price equilibrium, and characterize the unique subgame perfect equilibrium of the two-stage game in which firms first specify products and then compete in prices. In these models the discrete choice is affected by relative as opposed to absolute price changes. Models analyzed in this paper are counterparts to the Hotelling models, the circle model, and a model of vertical product differentiation.