Robust Equilibria in Location Games
AbstractIn the framework of spatial competition, two or more players strategically choose a location in order to attract consumers. It is assumed standardly that consumers with the same favorite location fully agree on the ranking of all possible locations. To investigate the necessity of this questionable and restrictive assumption, we model heterogeneity in consumers' distance perceptions by individual edge lengths of a given graph. A profile of location choices is called a ``robust equilibrium'' if it is a Nash equilibrium in several games which differ only by the consumers' perceptions of distances. For a finite number of players and any distribution of consumers, we provide a full characterization of all robust equilibria and derive structural conditions for their existence. Furthermore, we discuss whether the classical observations of minimal differentiation and inefficiency are robust phenomena. Thereby, we find strong support for an old conjecture that in equilibrium firms form local clusters.
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Bibliographic InfoPaper provided by University of Paderborn, CIE Center for International Economics in its series Working Papers with number 58.
Length: 27 pages
Date of creation: Feb 2013
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spatial competition; Hotelling-Downs; networks; graphs; Nash equilibrium; median; minimal differentiation;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D49 - Microeconomics - - Market Structure and Pricing - - - Other
- P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-16 (All new papers)
- NEP-COM-2013-03-16 (Industrial Competition)
- NEP-GEO-2013-03-16 (Economic Geography)
- NEP-GTH-2013-03-16 (Game Theory)
- NEP-MIC-2013-03-16 (Microeconomics)
- NEP-URE-2013-03-16 (Urban & Real Estate Economics)
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