Asymmetric Duopoly in Space - what policies work?
AbstractIn this paper we study the problem of a city with access to two subcentres selling a differentiated product. The first subcentre has low free flow transport costs but is easily congested (near city centre, access by road). The second one has higher free flow transport costs but is less prone to congestion (ample public transport capacity, parking etc.). Both subcentres need to attract customers and employees by offering prices and wages that are sufficiently attractive to cover their fixed costs. In the absence of any government regulation, there will be an asymmetric duopoly game that can be solved for a Nash equilibrium in prices and wages offered by the two subcentres. This solution is typically characterised by excessive congestion for the nearby subcentre. We study the welfare effects of a number of stylised policies by setting up a general model and illustrating the model using competition between airports as an example. The first stylised policy is to extend the congested road to subcentre 1. This policy will not necessarily lead to less congestion as more customers will be attracted by the lower transport costs. The second policy option is to add congestion pricing (or parking pricing etc.) for the congested subcentre. This will decrease its profit margin and attract more customers. The third policy is acceptable for politicians: providing a direct subsidy to the remote subcentre, reducing its marginal costs. This policy will again ease the congestion problem for the nearby subcentre but will do this in a very costly way.
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Bibliographic InfoPaper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment in its series Energy, Transport and Environment Working Papers Series with number ete0509.
Length: 32 pages
Date of creation: Dec 2005
Date of revision:
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More information through EDIRC
duopoly; imperfect competition; congestion; general equilibrium; airport competition;
Other versions of this item:
- Fay Dunkerley & André de Palma & Stef Proost, 2006. "Asymmetric duopoly in space - what policies work?," Center for Economic Studies - Discussion papers ces0610, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
- André De Palma & Fay Dunkerley & Stef Proost, 2005. "Asymmetric Duopoly in Space - what policies work?," ERSA conference papers ersa05p494, European Regional Science Association.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion
- R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-19 (All new papers)
- NEP-BEC-2006-02-19 (Business Economics)
- NEP-GEO-2006-02-19 (Economic Geography)
- NEP-MIC-2006-02-19 (Microeconomics)
- NEP-URE-2006-02-19 (Urban & Real Estate Economics)
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.:
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Center for Economic Studies - Discussion papers
ces0607, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
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- André De Palma & Fay Dunkerley & Stef Proost, 2005. "Trip chaining - who wins, who loses?," ERSA conference papers ersa05p496, European Regional Science Association.
- Andre de Palma & Dunkerley Fay, 2006. "Trip Chaining: Who Wins Who Loses?," Energy, Transport and Environment Working Papers Series ete0605, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
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