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Nash versus consistent equilibrium: A comparative perspective on a mixed duopoly location model of spatial price discrimination with delegation

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  • Michelacakis, Nickolas J.

Abstract

We argue that under the presence of a public firm, discriminatory pricing according to location leads to an efficient consistent equilibrium. We consider a mixed ownership duopoly delegation model with spatial price discrimination and constant, albeit different, marginal production costs. In contrast to what holds true for a private duopoly, we prove that the Nash equilibrium, absent delegation, is both consistent and socially optimal. The consistent equilibrium remains socially optimal regardless of the order in the delegation process. Under Nash conjectures, in most cases, firm owners have a strong incentive to delegate location decisions to managers. In such cases, duopolists locate closer to each other. Nash, compared to consistency of conjectures, leads to lower prices, lower profits, for both firms, and increased surplus for the consumer. The result surprises as it contrasts with respective findings regarding a private duopoly.

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  • Michelacakis, Nickolas J., 2023. "Nash versus consistent equilibrium: A comparative perspective on a mixed duopoly location model of spatial price discrimination with delegation," Regional Science and Urban Economics, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:regeco:v:99:y:2023:i:c:s0166046222000989
    DOI: 10.1016/j.regsciurbeco.2022.103860
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    1. Park, Junseok & Moon, Ilkyeong, 2023. "A facility location problem in a mixed duopoly on networks," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 175(C).

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    More about this item

    Keywords

    Mixed duopoly; Delegation; Spatial competition; Consistent conjectures; Nash equilibrium;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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