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Spatial differentiation is an economic term where geographic location is a differentiating factor between competitors. Consumers choose a firm based on transportation costs, which prevent switching for relatively small differences in price. Consumer preferences are analagous to consumer location and product characteristics are analagous to seller location. Substitution between two otherwise perfectly homogenous products will only occur when other forms of differentiation occur - eg price, product changes

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Q: What is spatial differentiation?
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