Location and Product Quality
AbstractWe examine a horizontal product differentiation duopoly model where firms are also differentiated with respect to the quality of their products. Firms first choose their locations and then compete in prices. It is shown that, whereas the low quality firm prefers to locate as far as possible from its competitor, the same is not true for the high quality firm, unless the quality difference is small enough. In addition, the paper suggests an explanation for spatial agglomeration based on incomplete informati on considerations. Because it is less costly for a high quality firm to locate close to another firm, choosing a location close to an existing firm signals high quality.
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Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 97-29.
Date of creation: 1997
Date of revision:
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Web page: http://econ.duke.edu/
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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