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Spatial Duopoly Under Uniform Delivered Pricing When Firms Avoid Turning Customers Away

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Author Info
Iozzi Alberto

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Abstract

This paper analyses a spatial duopoly model where firms produce homogeneous goods and set a uniform delivered price. In contrast with the existing literature, the paper shows that an equilibrium always exists. The crucial assumption in restoring the possibility of equilibrium is that firms cannot ration the supply of the good they produce. The market equilibrium is characterised for two different tie-breaking rules. When consumers buy from the nearest firm in case of equal prices, it is found that any symmetric price pair within a given range is a Nash equilibrium. If demand in each local market is equally split between the two firms charging the same price, there is only one equilibrium price pair, at which both firms make zero profits. Some welfare comparisons between the equilibria under the different tie-breaking rules are also provided.

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Paper provided by Tor Vergata University, CEIS in its series Departmental Working Papers with number 129.

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Date of creation: Dec 2000
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Handle: RePEc:rtv:ceiswp:129

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  1. De Palma, Andre & Pedro Pontes, Jose & Thisse, Jacques-Franco, 1987. "Spatial competition under uniform delivered pricing," Regional Science and Urban Economics, Elsevier, vol. 17(3), pages 441-449, August. [Downloadable!] (restricted)
  2. Anderson, S. & De Palma, A. & Thisse, J-F., 1989. "Social Surplus And Profitability Under Different Spacial Pricing Policies," CORE Discussion Papers 1989010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Dixon, Huw, 1990. "Bertrand-Edgeworth Equilibria when Firms Avoid Turning Customers Away," Journal of Industrial Economics, Blackwell Publishing, vol. 39(2), pages 131-46, December. [Downloadable!] (restricted)
  4. Lederer, Phillip J & Hurter, Arthur P, Jr, 1986. "Competition of Firms: Discriminatory Pricing and Location," Econometrica, Econometric Society, vol. 54(3), pages 623-40, May. [Downloadable!] (restricted)
  5. Dastidar, Krishnendu Ghosh, 1995. "On the Existence of Pure Strategy Bertrand Equilibrium," Economic Theory, Springer, vol. 5(1), pages 19-32, January.
  6. Hummels, David & Levinsohn, James A, 1993. "Product Differentiation as a," American Economic Review, American Economic Association, vol. 83(2), pages 445-49, May. [Downloadable!] (restricted)
  7. Gronberg, Timothy & Meyer, Jack, 1981. "Competitive Equilibria in Uniform Delivered Pricing Models," American Economic Review, American Economic Association, vol. 71(4), pages 758-63, September. [Downloadable!] (restricted)
  8. Anderson, Simon P & de Palma, Andre & Thisse, Jacques-Francois, 1989. "Spatial Price Policies Reconsidered," Journal of Industrial Economics, Blackwell Publishing, vol. 38(1), pages 1-18, September. [Downloadable!] (restricted)
  9. Kats, A. & Thisse, J-F, 1989. "Spatial Oligopolies With Uniform Delivered Pricing," CORE Discussion Papers 1989003, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  10. Schuler, Richard E & Hobbs, Benjamin F, 1982. "Spatial Price Duopoly under Uniform Delivered Pricing," Journal of Industrial Economics, Blackwell Publishing, vol. 31(1-2), pages 175-87, September. [Downloadable!] (restricted)
  11. MacLeod, W.B. & Norman, G. & Thisse, J.-F., 1988. "Price discrimination and equilibrium in monopolistic competition," International Journal of Industrial Organization, Elsevier, vol. 6(4), pages 429-446. [Downloadable!] (restricted)
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