Rationality, stability, and endogenous price formation in spatially interdependent markets
AbstractSpatial competition between firms is standard fare for traditional location theory and contemporary geographical economics. In this paper we examine the implications of modeling spatial competition using an approach grounded in geographical political economy, using mathematics as the language of theory. We make no presumptions about the existence of, or agents’ prior knowledge about, equilibrium; utilizing methodologies from nonlinear dynamics appropriate to this situation. For competition between equally spaced retailers along an unbounded linear market, selling a homogeneous commodity to uniformly dispersed consumers we show that Nash equilibrium, which rationalizes the existence and persistence of spatial price equilibria, need not hold. Depending on behavioral parameters, out-of-equilibrium dynamics may not converge toward equilibrium, displaying instead limit-cycle or aperiodic behavior. Further, even for cases that do converge, it can be rational for firms in equilibrium to set prices which depart from it, thereby increasing their profits. The presumptions of geographical economics concerning equilibrium are not adequate to make sense of capitalist spatial price competition. Keywords: rationality, spatial price competition, sociospatial dialectic, complexity, nonlinear dynamics
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Pion Ltd, London in its journal Environment and Planning A.
Volume (Year): 44 (2012)
Issue (Month): 3 (March)
Contact details of provider:
Web page: http://www.pion.co.uk
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Neil Hammond).
If references are entirely missing, you can add them using this form.