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The generalized circular model

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  • Webers, H.M.

    (Tilburg University, Faculty of Economics and Business Administration)

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    Abstract

    In this paper we present a generalization of the circular model. In this model there are two concentric circular markets, which enables us to study two types of markets simultaneously. There are switching costs involved for moving from one circle to the other circle, which can also be thought of as transformation costs. Consumers have valuations for the product of the firms, depending on the circle they live on. Equilibrium prices then of course are affected by both switching costs and consumers' valuations. An interesting insight that comes from this approach is that an extension of the circular model may invalidate the familiar principle that free entry is characterized by too many firms. Furthermore we discuss the effect of introducing reservation prices on the equilibrium outcome using a constructive approach.

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    Bibliographic Info

    Paper provided by Tilburg University, Faculty of Economics and Business Administration in its series Research Memorandum with number 685.

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    Date of creation: 1995
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    Handle: RePEc:dgr:kubrem:1995685

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    Web page: http://www.tilburguniversity.edu/nl/over-tilburg-university/schools/economics-and-management/

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    References

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    1. Webers, H.M., 1994. "The location model with two periods of price competition," Research Memorandum 663, Tilburg University, Faculty of Economics and Business Administration.
    2. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    3. Hamilton, J.H. & Macleod, W.B. & Thisse, J-F., 1988. "Spacial Competition And The Core," UFAE and IAE Working Papers 110-89, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    4. Webers, H.M., 1994. "The location model with two periods of price competition," Discussion Paper 1994-68, Tilburg University, Center for Economic Research.
    5. Boyer, Marcel & Moreaux, Michel, 1993. "Strategic market coverage in spatial competition," International Journal of Industrial Organization, Elsevier, vol. 11(3), pages 299-326, September.
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    Cited by:
    1. Webers, H.M., 1996. "Competition in Spatial Location Models," Open Access publications from Tilburg University urn:nbn:nl:ui:12-73591, Tilburg University.
    2. Raalte, C.L.J.P. van & Webers, H.M., 1995. "Spatial competition with intermediated matching," Research Memorandum 702, Tilburg University, Faculty of Economics and Business Administration.

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