  Previous research on two-dimensional extensions of Hotelling's location game
has argued that spatial competition leads to maximum differentiation in one
dimensions and minimum differentiation in the other dimension. We expand on
existing models to allow for endogenous entry into the market. We find that
competition may lead to the min/max finding of previous work but also may lead
to maximum differentiation in both dimensions. The critical issue in
determining the degree of differentiation is if existing firms are seeking to
deter entry of a new firm or to maximizing profits within an existing, stable
market.

General Economics;Theoretical Economics;Economics