Product Differentiation and Dual Markets in Multiple Dimensions

A general model of product differentiation of the “address type” is developed in ndimensional Lancasterian product characteristics space. Conditions are specified for assuming non-overlapping spherical catchment areas or “niches” for generalist producers . This leaves market niches for smaller specialist producers, in a dual market structure. Drawing upon the literature on the so-called sphere packing problem in geometry, it is shown that as the number of dimensions increases, more space for specialists opens up. This yields an explanation of the emergence, in many industries, of small producers next to large ones, in a dual market structure, which forms an alternative to the interpretation of “resource partitioning” theory in the sociological literature on population ecology (Hannan and Freeman 1977, Freeman and Hannan 1983, Carroll and Hannon 1995, Peli 1997). In particular, the development of dual structure no longer hinges on demand being inhomogeneously distributed in “peaks and troughs”.