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A continuous logit hotelling model with endogenous locations of consumers

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  • Wrede, Matthias

Abstract

This paper analyzes location and price choices of firms and subsequent location choices of consumers in a linear city model when consumers have different perceptions of locations and firms. The study utilizes a continuous logit model to describe consumers’ location and supplier choices. A unique subgame perfect Nash equilibrium exists where firms make positive profits and the minimum differentiation principle applies. For identical firms, prices converge to marginal costs as heterogeneity of consumers’ perceptions disappears.

Suggested Citation

  • Wrede, Matthias, 2015. "A continuous logit hotelling model with endogenous locations of consumers," Economics Letters, Elsevier, vol. 126(C), pages 81-83.
    • Handle: RePEc:eee:ecolet:v:126:y:2015:i:c:p:81-83
    DOI: 10.1016/j.econlet.2014.11.024
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    References listed on IDEAS

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    1. Beckmann, Martin J. & Thisse, Jacques-Francois, 1987. "The location of production activities," Handbook of Regional and Urban Economics, in: P. Nijkamp (ed.), Handbook of Regional and Urban Economics, edition 1, volume 1, chapter 2, pages 21-95, Elsevier.
    2. P. Nijkamp (ed.), 1987. "Handbook of Regional and Urban Economics," Handbook of Regional and Urban Economics, Elsevier, edition 1, volume 1, number 1.
    3. Schulz, Norbert & Stahl, Konrad, 1985. "On the non-existence of oligopolistic equilibria in differentiated products spaces," Regional Science and Urban Economics, Elsevier, vol. 15(2), pages 229-243, June.
    4. Thisse, Jacques-François & Toulemonde, Eric, 2010. "The Distribution of Earnings under Monopsonistic/polistic Competition," CEPR Discussion Papers 7981, C.E.P.R. Discussion Papers.
    5. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
    6. Anderson, Simon P, 1988. "Equilibrium Existence in the Linear Model of Spatial Competition," Economica, London School of Economics and Political Science, vol. 55(220), pages 479-491, November.
    7. Matthias Wrede, 2014. "Continuous Logit Polycentric City Model," CESifo Working Paper Series 4580, CESifo.
    8. Economides, Nicholas, 1984. "The principle of minimum differentiation revisited," European Economic Review, Elsevier, vol. 24(3), pages 345-368, April.
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    Cited by:

    1. Hamid Hamoudi & Isabel Rodríguez & Marcos Sanz Martín-Bustamante, 2017. "Optimal Zoning in Spatial Differentiation," Estudios de Economia, University of Chile, Department of Economics, vol. 44(1 Year 20), pages 33-51, June.
    2. Kelemen, József, 2020. "Szimultán Hotelling-modell Cobb-Douglas-hasznosságfüggvénnyel [A simultaneous Hotelling model with a Cobb-Douglas utility function]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 14-30.

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    More about this item

    Keywords

    Spatial competition; Continuous logit model; Minimum differentiation principle;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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