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Full or partial market coverage? A note on spatial competition with elastic demand

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  • Giovanni Nero

    (Institute of Transportation Studies, University of California at Berkeley, Berkeley, CA, USA)

Abstract

In this paper, a spatial model is used to endogenously determine product locations and prices when consumers have an elastic demand with a finite reservation price. I show under which condition a two-stage Bertrand-Nash equilibrium yields maximal product differentiation with full market covering. Additionally, this paper highlights the effects of a change in the reservation price and in the utility loss rate on the equilibrium values of the model. The ambiguous effect of a change in the utility loss rate on prices constitutes a rather puzzling result. Copyright © 1999 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 20 (1999)
Issue (Month): 2 ()
Pages: 107-111

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Handle: RePEc:wly:mgtdec:v:20:y:1999:i:2:p:107-111

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  1. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  2. al-Nowaihi, Ali & Norman, George, 1994. "Product selection by quantity-setting firms," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 12(4), pages 473-494, December.
  3. Economides, Nicholas, 1984. "The principle of minimum differentiation revisited," European Economic Review, Elsevier, Elsevier, vol. 24(3), pages 345-368, April.
  4. Constantatos, Christos & Perrakis, Stylianos, 1997. "Vertical differentiation: Entry and market coverage with multiproduct firms," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 16(1), pages 81-103, November.
  5. Neven, Damien, 1985. "Two Stage (Perfect) Equilibrium in Hotelling's Model," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 33(3), pages 317-25, March.
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Cited by:
  1. Esteves, Rosa-Branca & Reggiani, Carlo, 2014. "Elasticity of demand and behaviour-based price discrimination," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 32(C), pages 46-56.

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