# Location-then-price competition with uncertain consumer tastes

## Author Info

• Kieron Meagher

()

• Klaus Zauner
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## Abstract

We investigate Hotelling’s duopoly game of location-then-price choices with quadratic transportation costs and uniformly distributed consumers under the assumption that firms are uncertain about consumer tastes. When the uncertainty has a uniform distribution on the closed interval $[-\frac{L}{2},\frac{L}{2}]$ , with $0 > L > \infty$ , we characterize the unique equilibrium and the socially optimal locations. Contrary to the individual-level random utility models, we find that uncertainty is a differentiation force. For small (large) sizes of the uncertainty, there is excessive (insufficient) differentiation. More uncertainty about consumer tastes can have positive or negative welfare effects, depending on the size of the uncertainty. Copyright Springer-Verlag Berlin/Heidelberg 2005

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## Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 25 (2005)
Issue (Month): 4 (06)
Pages: 799-818

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Handle: RePEc:spr:joecth:v:25:y:2005:i:4:p:799-818

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## Related research

Keywords: Location; Product differentiation; Uncertainty; Hotelling.;

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## Citations

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Cited by:
1. Kieron Meagher, 2011. "Optimal Product Variety in a Hotelling Model," ANU Working Papers in Economics and Econometrics 2011-555, Australian National University, College of Business and Economics, School of Economics.
2. Król, Michał, 2012. "Product differentiation decisions under ambiguous consumer demand and pessimistic expectations," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 593-604.
3. L. Kaas & P. Madden, 2006. "Minimum Wages and Welfare in a Hotelling Duopsony," The School of Economics Discussion Paper Series 0604, Economics, The University of Manchester.
4. Heidrun Hoppe & Ulrich Lehmann-Grube, 2008. "Price competition in markets with customer testing: the captive customer effect," Economic Theory, Springer, vol. 35(3), pages 497-521, June.
5. Aurélie Bonein & Stéphane Turolla, 2007. "Sequential Location under one-sided Demand Uncertainty," Working Papers 07-12, LAMETA, Universtiy of Montpellier, revised Nov 2007.
6. Michal Król, 2009. "The role of demand uncertainty in the two stage Hotelling model," The School of Economics Discussion Paper Series 0904, Economics, The University of Manchester.
7. Meagher, Kieron J. & Zauner, Klaus G., 2011. "Uncertain spatial demand and price flexibility: A state space approach to duopoly," Economics Letters, Elsevier, vol. 113(1), pages 26-28, October.
8. Kieron J. Meagher & Klaus G. Zauner, 2008. "Uncertainty in Spatial Duopoly with Possibly Asymmetric Distributions: a State Space Approach," CEPR Discussion Papers 579, Centre for Economic Policy Research, Research School of Economics, Australian National University.
9. 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.

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