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Does Asymmetry or Incomplete Information on Firms' Costs Yield Spatial Agglomeration?

Author

Listed:
  • Sung-chi Lin

    (Department of Economics, National Taipei University)

  • Hsiao-chi Chen

    (Department of Economics, National Taipei University)

  • Shi-miin Liu

    (Department of Economics, National Taipei University)

Abstract

This paper extends Hotelling's (1929) spatial game by allowing firms to have asymmetric costs or incomplete information about their rivals' costs. In both cases, there exist equilibria under specific conditions. At the equilibria, the cost-efficient firm will locate at the center of the market and earn positive profit, but the less efficient firm may or may not locate at the market center and produces zero output. Thus, our results do not support the findings of Hotelling (1929) and d'Aspremont et al. (1979).

Suggested Citation

  • Sung-chi Lin & Hsiao-chi Chen & Shi-miin Liu, 2016. "Does Asymmetry or Incomplete Information on Firms' Costs Yield Spatial Agglomeration?," Economics Bulletin, AccessEcon, vol. 36(4), pages 2010-2027.
    • Handle: RePEc:ebl:ecbull:eb-16-00506
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    File URL: http://www.accessecon.com/Pubs/EB/2016/Volume36/EB-16-V36-I4-P197.pdf
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    More about this item

    Keywords

    Asymmetric costs; incomplete information; location; price competition; spatial game;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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