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Price-Dependent Demand in Spatial Models

  • Gu Yiquan

    ()

    (University of Liverpool)

  • Wenzel Tobias

    ()

    (University of Düsseldorf)

This paper introduces price-dependent individual demand into the circular city model of product differentiation. We show that for any finite number of firms, an unique symmetric price equilibrium exists provided that demand functions are not “too” convex. As in the case of unit demand, the number of firms under free entry decreases in the fixed cost of entry while increases in the transportation cost of consumers. However, this number is no longer always in excess of the socially optimal level. Insufficient entry occurs when the fixed and transportation costs are high.

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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 12 (2012)
Issue (Month): 1 (March)
Pages: 1-26

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Handle: RePEc:bpj:bejeap:v:12:y:2012:i:1:n:6
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  1. Calvó-Armengol, Antoni & Zenou, Yves, 2001. "The Importance of the Distribution of Consumers in Horizontal Product Differentiation," CEPR Discussion Papers 3031, C.E.P.R. Discussion Papers.
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  15. Gu, Yiquan & Wenzel, Tobias, 2007. "A Note on the Excess Entry Theorem in Spatial Models with Elastic Demand," Ruhr Economic Papers 33, Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI), Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
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