Abstract
Product differentiation is certainly one of the salient characteristics of today's food markets in developed economies. This article focuses on models of horizontal differentiation and on conceptual models. It presents a general framework to modeling markets with differentiated products and illustrates the limitations to this approach. It argues that a solution is to impose more structure on the model, for example by assuming either horizontal or vertical differentiation. This article presents a generalized version of Hotelling's original model and derives the short-run equilibrium and key comparative statics. It then considers further extensions and generalizations of the short-run model, and discusses applications of the model to food markets. It addresses the question of firms' optimal location in the product space and considers horizontal product differentiation based upon multiple product characteristics.
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