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Price and Variety in the Spokes Model

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Author Info
Michael H. Riordan () (Columbia University - Department of Economics)
Yongmin Chen () (University of Colorado at Boulder - Department of Economics)

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Abstract

The spokes model of nonlocalized spatial competition provides a new analytical tool for differentiated oligopoly and a representation of spatial monopolistic competition. At the unique symmetric equilibrium of the spokes model, an increase in the number of firms leads to lower prices when consumers have relatively high product valuations, but, surprisingly, to higher prices for lower consumer valuations. New entry alters consumer and social welfare through price, market expansion, and matching effects. With free entry, there can be multiple equilibria in the number of firms, the market may provide too many or too few varieties from a social welfare perspective, and the equilibrium price remains above marginal cost even when the number of firms is arbitrarily large.

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File URL: http://www.econ.columbia.edu/RePEc/pdf/DP0405-20.pdf
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Publisher Info
Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0405-20.

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Length: 40 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:clu:wpaper:0405-20

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Wolinsky, Asher, 1986. "True Monopolistic Competition as a Result of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 493-511, August. [Downloadable!] (restricted)
  2. Curtis Eaton, B. & Lipsey, Richard G., 1989. "Product differentiation," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 12, pages 723-768 Elsevier. [Downloadable!] (restricted)
  3. Yongmin Chen & Michael H. Riordan, 2003. "Vertical Integration, Exclusive Dealing, and Ex Post Cartelization," Discussion Papers 0203-13, Columbia University, Department of Economics. [Downloadable!]
  4. Sattinger, Michael, 1984. "Value of an Additional Firm in Monopolistic Competition," Review of Economic Studies, Blackwell Publishing, vol. 51(2), pages 321-32, April. [Downloadable!] (restricted)
  5. Perloff, Jeffrey M & Salop, Steven C, 1985. "Equilibrium with Product Differentiation," Review of Economic Studies, Blackwell Publishing, vol. 52(1), pages 107-20, January. [Downloadable!] (restricted)
  6. Yongmin Chen & Michael H. Riordan, 2008. "Price-increasing competition," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 1042-1058. [Downloadable!] (restricted)
  7. Perloff, Jeffrey M. & Suslow, Valerie Y. & Seguin, Paul J., 1996. "Higher prices from entry : pricing of brand-name drugs," CUDARE Working Paper Series 778, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy. [Downloadable!]
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  8. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-79, September. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Zacharias, Eleftherios, 2009. "Firm entry, product repositioning and welfare," MPRA Paper 15459, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Sällström, Susanna, 2009. "Functional Differentiation," CEPR Discussion Papers 7187, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Ramon Caminal, 2009. "Markets and linguistic diversity," UFAE and IAE Working Papers 781.09, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
  4. Yongmin Chen & Scott J. Savage, 2007. "The Effects Of Competition On The Price For Cable Modem Internet Access," Working Papers 07-13, NET Institute, revised Sep 2007. [Downloadable!]
  5. Fabrizio Germano, 2008. "On Commercial Media Bias," Economics Working Papers 1133, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2009. [Downloadable!]
  6. Caminal, Ramón, 2006. "Too Many or Too Few Varieties? The Role of Multiproduct Firms," CEPR Discussion Papers 5938, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Alexei Alexandrov, 2008. "Interconnecting Differentiated Networks," Working Papers 08-07, NET Institute, revised Oct 2008. [Downloadable!]
  8. Duarte Brito & Pedro Pereira, 2006. "Access to Bottleneck Inputs under Oligopoly: a Prisoners Dilemma?," Working Papers 16, Portuguese Competition Authority. [Downloadable!]
  9. Helen Weeds, 2009. "Superstars and the Long Tail: The impact of technology on market structure in media industries," Economics Discussion Papers 669, University of Essex, Department of Economics. [Downloadable!]
  10. Rey, Patrick & Salant, David, 2008. "Abuse of Dominance and Licensing of Intellectual Property," MPRA Paper 9454, University Library of Munich, Germany. [Downloadable!]
  11. Ramon Caminal & Lluís M. Granero, 2008. "Multi-product Firms and Product Variety," UFAE and IAE Working Papers 734.08, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
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