Univariate classification of differentiated international markets

Abstract

Hotelling initiated the use of spatial analogies in assessing market differentiation. In this paper, this line is followed to analyze differentiated international markets. Most of the economies in the world are arrayed as if they are a continuum of points of demand. In this paper, this continuum of demand points is partitioned into homogeneous segments by use of a classification algorithm that minimizes within-group variation. The criteria used for classifying are two indicators of market overlap that have been suggested as important by the new trade theory, proximity of gross national product (GNP), and proximity of per capita GNP. Several of the derived market partitions are compared with other classifications of international markets in the form of existing and planned geographically discriminatory trade arrangements.