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Sequential Location Equilibria Under Incomplete Information

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  • Boyer, M.
  • Laffont, J.J.
  • Mahenc, P.

Abstract

We consider a simple model of incomplete information in location theory. Two firms compete in a two stage framework: a sequential location stage and a price competition stage. Firm 1 knows both its own constant marginal cost technology and that of Firm 2, whereas the latter has incomplete information about firm 1's technology. The location stage turns out to be a monotonic signalling game and the unique D1 equilibrium is a pure strategy separating equilibrium if Firm 1's cost advantage is below some bound, and otherwise a pooling equilibrium if the prior probability that Firm 1 is of the low cost type is high, or a semi-pooling equilibrium if it is low. This surprising result is due to the fact that the location gap between the two types of Firm 1 is bounded because of natural economic reasons, which may prevent the separation of the two types. Hence, incomplete information matters: the equilibrium locations differ quite significantly from the full information equilibrium locations. Nous proposons ici un modèle simple d'information incomplète en théorie de la localisation. Deux entreprises s'affrontent dans un contexte à deux étapes : une étape de localisation séquentielle et un étape de concurrence en prix. La firme 1 connaît sa technologie à coût marginal constant et celle de la firme 20501s cette dernière n'a qu'une information imparfaite de la technologie de sa concurrente. La concurrence de première étape s'avère être un jeu de signal monotone et l'équilibre D1 unique est un équilibre séparateur en stratégies pures si l'avantage de coût de la firme 1 est relativement faible et sinon, un équilibre mélangeant, si la probabilité a priori que la firme 1 soit de type coût faible est élevée, ou un équilibre semi-mélangeant, si cette probabilité est faible. Ce résultat surprenant est dû au fait que l'écart de localisation entre les firmes est naturellement borné, ce qui peut empêcher la séparation des types. Ainsi, les localisations

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Bibliographic Info

Paper provided by Universite de Montreal, Departement de sciences economiques in its series Cahiers de recherche with number 9426.

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Length: 32 pages
Date of creation: 1994
Date of revision:
Handle: RePEc:mtl:montde:9426

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Keywords: INFORMATION ; ECONOMIC EQUILIBRIUM;

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References

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  1. ANDERSON, Simon P. & de PALMA, André & THISSE, Jacques-François, . "Spatial price policies reconsidered," CORE Discussion Papers RP -838, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Jonathan H. Hamilton & W. Bentley MacLeod, 1987. "Spatial Competition and the Core," Working Papers 704, Queen's University, Department of Economics.
  3. Carlton, Dennis W, 1983. "A Reexamination of Delivered Pricing Systems," Journal of Law and Economics, University of Chicago Press, vol. 26(1), pages 51-70, April.
  4. THISSE, Jacques-François & VIVES, Xavier, . "On the strategic choice of spatial price policy," CORE Discussion Papers RP -793, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Paul Milgrom & John Roberts, 1998. "Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis," Levine's Working Paper Archive 245, David K. Levine.
  6. 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).
  7. Hobbs, Benjamin F, 1986. "Mill Pricing versus Spatial Price Discrimination under Bertrand and Cournot Spatial Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 35(2), pages 173-91, December.
  8. Boyer, Marcel & Laffont, Jean-Jacques & Mahenc, Philippe & Moreaux, Michel, 1994. "Location distortions under incomplete information," Regional Science and Urban Economics, Elsevier, vol. 24(4), pages 409-440, August.
  9. Cho, In-Koo & Sobel, Joel, 1990. "Strategic stability and uniqueness in signaling games," Journal of Economic Theory, Elsevier, vol. 50(2), pages 381-413, April.
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Citations

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Cited by:
  1. Kress, Dominik & Pesch, Erwin, 2012. "Sequential competitive location on networks," European Journal of Operational Research, Elsevier, vol. 217(3), pages 483-499.
  2. Marcel Boyer & Philippe Mahenc & Michel Moreaux, 2002. "Entry Preventing Locations Under Incomplete Information," CIRANO Working Papers 2002s-15, CIRANO.
  3. Boyer, Marcel & Porrini, Donatella, 2011. "The impact of court errors on liability sharing and safety regulation for environmental/industrial accidents," International Review of Law and Economics, Elsevier, vol. 31(1), pages 21-29, March.
  4. BOYER, Marcel & MOREAUX, Michel & MAHENC, Philippe, 1995. "Entry Blockading Locations," Cahiers de recherche 9555, Universite de Montreal, Departement de sciences economiques.
  5. Marcel Boyer & Philippe Mahenc & Michel Moreaux, 2002. "Asymmetric Information And Product Differentiation," CIRANO Working Papers 2002s-16, CIRANO.
  6. Margolis, D..N., 1995. "Firm Heterogeneity and Worker Self-Selection Bias Estimated Returns to Seniority," Cahiers de recherche 9502, Universite de Montreal, Departement de sciences economiques.
  7. Andreea Cosnita-Langlais, 2014. "Where to locate to escape predation?," Economics Bulletin, AccessEcon, vol. 34(2), pages 614-626.

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