Alexei Alexandrov

The economics literature generally considers products as points in some characteristics space. With more products being flexible or self-customizable to some degree, it makes sense to model products with positive measure. I develop a model of firms which can offer interval-long “fat” products in the spatial model of differentiation. Contrary to the standard results, profits of the firms can decrease with increased differentiation in the market—there is a standard effect of lowering the incentive to cut prices, but there is also an incentive to provide more content, resulting in higher costs and possibly overall losses.