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Endogenous location leadership

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  • Meza, Sergio
  • Tombak, Mihkel

Abstract

We analyze a game of timing where Sellers, which have marginal production cost asymmetries, can delay entry and a commitment to a location in a Hotelling type setting. When cost differences are large enough the game becomes a war of attrition that yields Stackelberg behavior where the high cost firm will delay choosing a location until the low cost firm commits to its position. We find interaction effects between timing and the degree of product differentiation and compute timing/location and mixed strategy equilibria through a range of marginal cost differences. The firms maximally differentiate with moderate cost differences; with somewhat greater cost differences there is intermediate differentiation, and; with large cost differences there is a blockading monopoly. The low cost firm always commits to entry immediately whereas the high cost firm either enters immediately, shortly after the low cost leader, or never, depending on the cost differences. Finally, we find that in equilibrium the duopoly is sustained for a larger range of cost differentials and that differentiation is greater than the social optimum.

Suggested Citation

  • Meza, Sergio & Tombak, Mihkel, 2009. "Endogenous location leadership," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 687-707, November.
  • Handle: RePEc:eee:indorg:v:27:y:2009:i:6:p:687-707
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Matsumura, Toshihiro & Matsushima, Noriaki, 2012. "Welfare properties of strategic R&D investments in Hotelling models," Economics Letters, Elsevier, vol. 115(3), pages 465-468.
    2. Martin C. Byford & Joshua S. Gans, 2014. "Permission to Exist," NBER Working Papers 20512, National Bureau of Economic Research, Inc.
    3. repec:kap:revind:v:52:y:2018:i:1:d:10.1007_s11151-017-9568-x is not listed on IDEAS
    4. Ralph Braid, 2013. "The locations of firms on intersecting roadways," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 50(3), pages 791-808, June.
    5. Torbenko, A., 2015. "Linear City Models: Overview and Typology," Journal of the New Economic Association, New Economic Association, vol. 25(1), pages 12-38.
    6. Ralph Braid, 2014. "The socially optimal and equilibrium locations of two stores or libraries with consumer search," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 53(1), pages 123-136, August.
    7. Toshihiro Matsumura & Noriaki Matsushima, 2010. "Patent licensing, bargaining, and product positioning," ISER Discussion Paper 0775, Institute of Social and Economic Research, Osaka University.
    8. Ralph M. Braid, 2016. "Potential merger-forcing entry reduces maximum spacing between firms in spatial competition," Papers in Regional Science, Wiley Blackwell, vol. 95(3), pages 653-669, August.
    9. Ebina, Takeshi & Matsushima, Noriaki & Shimizu, Daisuke, 2015. "Product differentiation and entry timing in a continuous time spatial competition model," European Journal of Operational Research, Elsevier, vol. 247(3), pages 904-913.
    10. Jianhu Zhang & Changying Li, 2013. "Endogenous timing in a mixed oligopoly under demand uncertainty," Journal of Economics, Springer, vol. 108(3), pages 273-289, April.
    11. João Correia-da-Silva & Joana Pinho, 2011. "Costly horizontal differentiation," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 10(3), pages 165-188, December.
    12. Kress, Dominik & Pesch, Erwin, 2012. "Sequential competitive location on networks," European Journal of Operational Research, Elsevier, vol. 217(3), pages 483-499.
    13. Toshihiro Matsumura & Daisuke Shimizu, 2015. "Endogenous Flexibility In The Flexible Manufacturing System," Bulletin of Economic Research, Wiley Blackwell, vol. 67(1), pages 1-13, January.
    14. Keizo Mizuno & Yasunori Okumura, 2014. "Strategic Location Choice and Network Formation for Entry," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 170(2), pages 201-224, June.
    15. Torbenko, Alexander, 2013. "Модель Линейного Города С Экзогенной Конкуренцией По Штакельбергу
      [Line City Model with Exogenous Stackelberg Competition]
      ," MPRA Paper 46921, University Library of Munich, Germany.
    16. Pietro Moncada-Paterno-Castello, 2011. "Companies' growth in the EU: What is research and innovation policy's role?," JRC Working Papers on Corporate R&D and Innovation 2011-03, Joint Research Centre (Seville site).

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