Price regulation in a spatial duopoly with possible non-buyers
AbstractIf the price is regulated in a spatial duopoly where consumers have a finite upper bound as to the price they are willing to pay for the differentiated product, in most cases the Principle of Minimum Differentiation does not apply. Depending on the market structure firms either (i) form local monopolies, or (ii) differentiate intermediately, or (iii) agglomerate at the market centre. Minimum differentiation is never total-surplus-maximizing nor desired by firms. In most cases the regulator sets a price below that maximizing industry profits. For a substantial range of market configurations the regulated (first-best) price exceeds marginal cost. This induces firms to serve a larger part of the market.
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Bibliographic InfoArticle provided by Springer in its journal The Annals of Regional Science.
Volume (Year): 36 (2002)
Issue (Month): 1 ()
Note: Received: February 1999/Accepted: September 2001
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Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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- Jeroen Hinloopen & Stephen Martin, 2013. "Costly Location in Hotelling Duopoly," Tinbergen Institute Discussion Papers 13-101/VII, Tinbergen Institute.
- Kurt R. Brekke & Robert Nuscheler & Odd Rune Straume, 2006.
"Quality and Location Choices under Price Regulation,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 15(1), pages 207-227, 03.
- Brekke, Kurt R. & Nuscheler, Robert & Straume, Odd Rune, 2002. "Quality and location choices under price regulation," Working Papers in Economics 24/02, University of Bergen, Department of Economics.
- Brekke, Kurt R. & Nuscheler, Robert & Straume, Odd Rune, 2002. "Quality and location choices under price regulation," Discussion Papers, Research Unit: Market Processes and Governance FS IV 02-28, Social Science Research Center Berlin (WZB).
- Sallstrom Matthews, S.E., 2007. "The Principle of Moderate Differentiation," Cambridge Working Papers in Economics 0720, Faculty of Economics, University of Cambridge.
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