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Endogenous location leadership

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  • Meza, Sergio
  • Tombak, Mihkel
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    Abstract

    We analyze a game of timing where Sellers, which have marginal production cost asymmetries, can delay entry and a commitment to a location in a Hotelling type setting. When cost differences are large enough the game becomes a war of attrition that yields Stackelberg behavior where the high cost firm will delay choosing a location until the low cost firm commits to its position. We find interaction effects between timing and the degree of product differentiation and compute timing/location and mixed strategy equilibria through a range of marginal cost differences. The firms maximally differentiate with moderate cost differences; with somewhat greater cost differences there is intermediate differentiation, and; with large cost differences there is a blockading monopoly. The low cost firm always commits to entry immediately whereas the high cost firm either enters immediately, shortly after the low cost leader, or never, depending on the cost differences. Finally, we find that in equilibrium the duopoly is sustained for a larger range of cost differentials and that differentiation is greater than the social optimum.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Industrial Organization.

    Volume (Year): 27 (2009)
    Issue (Month): 6 (November)
    Pages: 687-707

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    Handle: RePEc:eee:indorg:v:27:y:2009:i:6:p:687-707

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    Web page: http://www.elsevier.com/locate/inca/505551

    Related research

    Keywords: Asymmetries Horizontal differentiation Stackelberg Games of timing;

    References

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    Citations

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    Cited by:
    1. Matsumura, Toshihiro & Matsushima, Noriaki, 2012. "Welfare properties of strategic R&D investments in Hotelling models," Economics Letters, Elsevier, vol. 115(3), pages 465-468.
    2. Jianhu Zhang & Changying Li, 2013. "Endogenous timing in a mixed oligopoly under demand uncertainty," Journal of Economics, Springer, vol. 108(3), pages 273-289, April.
    3. Pietro Moncada-Paterno-Castello, 2011. "Companies' growth in the EU: What is research and innovation policy's role?," JRC-IPTS Working Papers on Corporate R&D and Innovation 2011-03, Institute of Prospective Technological Studies, Joint Research Centre.
    4. Kress, Dominik & Pesch, Erwin, 2012. "Sequential competitive location on networks," European Journal of Operational Research, Elsevier, vol. 217(3), pages 483-499.
    5. Torbenko, Alexander, 2013. "Модель Линейного Города С Экзогенной Конкуренцией По Штакельбергу
      [Line City Model with Exogenous Stackelberg Competition]
      ," MPRA Paper 46921, University Library of Munich, Germany.
    6. João Correia-da-Silva & Joana Pinho, 2011. "Costly horizontal differentiation," Portuguese Economic Journal, Springer, vol. 10(3), pages 165-188, December.
    7. Toshihiro Matsumura & Noriaki Matsushima, 2010. "Patent licensing, bargaining, and product positioning," ISER Discussion Paper 0775, Institute of Social and Economic Research, Osaka University.
    8. Ralph Braid, 2013. "The locations of firms on intersecting roadways," The Annals of Regional Science, Springer, vol. 50(3), pages 791-808, June.

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