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Competition by choice

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Author Info

  • Marc Dudey

Abstract

This paper relates firm location choice and consumer search. Firms that cluster together attract consumers by facilitating price comparison, but clustering increases the intensity of local competition. I construct a simple model which shows that firms may choose head-on competition by locating together. In special cases, this can be the unique equilibrium outcome. I also use the model to show that price setting firms may earn more in equilibrium than quantity setting firms.

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File URL: http://www.federalreserve.gov/pubs/ifdp/1988/327/default.htm
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File URL: http://www.federalreserve.gov/pubs/ifdp/1988/327/ifdp327.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 327.

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Date of creation: 1988
Date of revision:
Handle: RePEc:fip:fedgif:327

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Related research

Keywords: Competition ; Consumer behavior ; Business enterprises;

References

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  1. d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "On Hotelling's "Stability in competition"," CORE Discussion Papers RP -385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Edward C. Prescott & Michael Visscher, 1977. "Sequential Location among Firms with Foresight," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 378-393, Autumn.
  3. Stahl, Konrad, 1982. "Differentiated Products, Consumer Search, and Locational Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 97-113, September.
  4. Joseph Farrell & Garth Saloner, 1984. "Standardization, Compatibility and Innovation," Working papers 345, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:
  1. Prentice, David & Sibly, Hugh, 1996. "A Search-Theoretic Interpretation of Multi-outlet Retailers," The Economic Record, The Economic Society of Australia, vol. 72(219), pages 359-69, December.
  2. Konishi, Hideo, 2005. "Concentration of competing retail stores," Journal of Urban Economics, Elsevier, vol. 58(3), pages 488-512, November.
  3. Hideo Konishi & Michael Sandfort, 2001. "Anchor Stores," Boston College Working Papers in Economics 516, Boston College Department of Economics, revised 14 Nov 2002.
  4. Angela Chang & Shubham Chaudhuri & Jith Jayaratne, 1997. "Rational herding and the spatial clustering of bank branches: an empirical analysis," Research Paper 9724, Federal Reserve Bank of New York.
  5. Michael Sandfort & Hideo Konishi, 2000. "Expanding Demand through Price Advertisement," Boston College Working Papers in Economics 453, Boston College Department of Economics, revised 21 Jun 2001.

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