A public firm challenged by entry: duplication or diversity?
AbstractShould a public firm locate close to or far away from a private firm, i.e., is duplication or diversity the optimum policy? We extend the classical Hotelling location game with exogenously fixed prices to the case where consumers' transportation costs are asymmetric, in the sense that it is more costly for a consumer to move in one direction, say to the left (towards 0), than to move to the right (toward 1). First, we consider the case of two private firms. We find a condition for the existence of a pure-strategy equilibrium. We also explore the outcome of a game of sequential entry. Finally, we consider the case of sequential entry when the first mover is a welfare maximiser, in order to account for the presence of a publicly owned incumbent. It is found that both duplication and diversity may be the optimum policy. We discuss the relevance of this analysis for the recent experience in Norway and Denmark with respect to liberalization of TV transmission.
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Bibliographic InfoArticle provided by Elsevier in its journal Regional Science and Urban Economics.
Volume (Year): 32 (2002)
Issue (Month): 2 (March)
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Web page: http://www.elsevier.com/locate/regec
Other versions of this item:
- Nilssen, T. & Sorgard, L., 1998. "A Public Firm Challenged by Entry: Duplication of Diversity?," Papers 13/98, Norwegian School of Economics and Business Administration-.
- L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis
- L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
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