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Spacial Equilibrium in a State Space Approach to Demand Uncertainty

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Author Info
Kieron J. Meagher () (School of Economics, The University of New South Wales)
Klaus G. Zauner (University of York)

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Abstract

Firms are likely to be uncertain about consumer preferences when launching products. The existing literature models preference uncertainty as an additive shock to the consumer distribution in a characteristic space model. The additive shock only shifts the mean of the consumers' ideal points. We generalize this approach to a state space model in which a vector of parameters can give rise to di erent distributions of consumer tastes in di erent states, allowing other moments of the consumer density to be uncertain. An equilibrium existence result is given. In the case of symmetric distributions, the unique subgame-perfect equilibrium can be described by a simple closed-form solution.

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File URL: http://wwwdocs.fce.unsw.edu.au/economics/Research/WorkingPapers/2007_19.pdf
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Publisher Info
Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2007-19.

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Length: 8 pages
Date of creation: Jun 2007
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Handle: RePEc:swe:wpaper:2007-19

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Related research
Keywords: Location Product Di erentiation Uncertainty Hotelling

Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
R30 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - General
R39 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - Other

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