1. IntroductionIn the literature on spatial monopoly, it is common to assume that the firm produced (or sold) only one good. This assumption, however, departs from the real world. It is restrictive and simplifies the consumer preference and demand characteristics (Greenhut and Ohta 1972; Holahan 1975; Beckmann 1976; Hsu 1983; Claycombe 1991, 1996; Hwang and Mai 1990; Peng 1992; Chu and Lu 1998). In reality, a trip to the supermarket or the grocery store shows that many similar products are sold to the various tastes and requirements of different consumers, as with a restaurant offering a variety of meals. Therefore, a firm may be regarded as producing (or selling) multiple products or similar types of products with a differentiated variety. Moreover, a consumer may consume many products or prefer to consume one good with a differentiated variety (Dixit and Stiglitz 1977; Ottaviano, Tabuchi, and Thisse 2002). In this paper, I develop a model to incorporate both demand- and supply-side considerations of product variety in a spatial monopoly.From the viewpoint of consumer preferences, it is well recognized that a consumer exhibits a preference for variety in consumption. Hanly and Cheung (1998) point out that demand complementarity is one source of the advantages that accrue to a multiple-product firm. In practice, even consumers tend to purchase only one, or at most a few, of the varieties offered. A representative consumer approach can be used to generate a utility function to incorporate the aggregate preference for a differentiated product. The representative consumer is a simplifying construct that is frequently used in the theoretical analysis of differentiated product markets.1 In addition, in numerous fields, including industrial organization (Dixit 1979; Vives 1990), international trade (Anderson, Schmitt, and Thisse 1995), and demand analysis (Philips 1983), the utility function is specified in order take into account the consumption of differentiated products. However, they all assume that a firm produces only one product. Thus, the results are based on a framework of monopolistic competition. Here, I consider a model with a quadratic utility function and highlight the economic effect with the choice of product differentiation and the consumption of product variety.Classical (nonspatial) economics describes various interesting issues related to a multiple-product monopoly (Klinger-Monteiro and Page 1998; Armstrong 1999). Thisse and Vives (1988) analyze the simultaneous choice of policy and price in a product differentiation context, and their examination is closely related to a film's variety offer. In a product differentiation context, it is also interesting to examine the economic effect of the choice of variety and pricing in the spatial monopoly. It may establish some interesting results that differ from some conventional results in the literature that are based on the assumption of a single-product firm.This paper analyzes the optimal decision of the firm when consumers have preferences for product variety in a spatial monopoly. In particular, I employ a quadratic utility function and assume that the consumer consumes all the goods produced by the firm. Thus, the demand function for each variety is linear. After comparing the results with those in the literature where demand is linear, it is also important to examine the economic effect with these spatial pricing policies based on a multiproduct monopoly and make comparisons with existing literature on single-product firms.Based on a survey of firms in the United States, West Germany, and Japan, Greenhut (1981) finds that firms in the United States tend to practice price discrimination. Of 174 sampled firms, less than one-third adopted mill pricing (f.o.b.), and only one-fifth used uniform pricing. The remaining 46% resorted to discriminatory pricing. The tendency for price discrimination was even greater in West Germany and Japan, where the percentages of firms engaged in price discrimination were approximately 47% and 55%, respectively. …