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A public firm challenged by entry: duplication or diversity?

  • Nilssen, Tore
  • Sorgard, Lars

Should a public firm locate close to or far away from a private firm, i.e., is duplication or diversity the optimum policy? We extend the classical Hotelling location game with exogenously fixed prices to the case where consumers' transportation costs are asymmetric, in the sense that it is more costly for a consumer to move in one direction, say to the left (towards 0), than to move to the right (toward 1). First, we consider the case of two private firms. We find a condition for the existence of a pure-strategy equilibrium. We also explore the outcome of a game of sequential entry. Finally, we consider the case of sequential entry when the first mover is a welfare maximiser, in order to account for the presence of a publicly owned incumbent. It is found that both duplication and diversity may be the optimum policy. We discuss the relevance of this analysis for the recent experience in Norway and Denmark with respect to liberalization of TV transmission.

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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 32 (2002)
Issue (Month): 2 (March)
Pages: 259-274

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Handle: RePEc:eee:regeco:v:32:y:2002:i:2:p:259-274
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  1. Gal-Or, Esther, 1985. "First Mover and Second Mover Advantages," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 649-53, October.
  2. Cremer, Helmuth & Marchand, Maurice & Thisse, Jacques-Francois, 1991. "Mixed oligopoly with differentiated products," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 43-53, March.
  3. ANDERSON, Simon & de PALMA, André & THISSE, Jacques-François, 1996. "Privatization and Efficiency in a Differentiated Industry," CORE Discussion Papers 1996045, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Roger Ware, 1986. "A Model of Public Enterprise with Entry," Canadian Journal of Economics, Canadian Economics Association, vol. 19(4), pages 642-55, November.
  5. B.Curtis Eaton & Richard G. Lipsey, 1972. "The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition," Working Papers 87, Queen's University, Department of Economics.
  6. Nilssen, T., 1996. "Sequential Location when Transportation Costs Are Asymmetric," Memorandum 36/1996, Oslo University, Department of Economics.
  7. Massimo Motta & Michele Polo, 1997. "Concentration and public policies in the broadcasting industry: the future of television," Economic Policy, CEPR;CES;MSH, vol. 12(25), pages 293-334, October.
  8. Tore Nilssen & Lars Sørgard, 1998. "Time Schedule and Program Profile: TV News in Norway and Denmark," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(2), pages 209-235, 06.
  9. C. Leigh Anderson, 1992. "Canadian Content Laws and Programming Diversity," Canadian Public Policy, University of Toronto Press, vol. 18(2), pages 166-175, June.
  10. de Fraja, Giovanni & Delbono, Flavio, 1989. "Alternative Strategies of a Public Enterprise in Oligopoly," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 302-11, April.
  11. Cancian, Maria & Bills, Angela & Bergstrom, Theodore, 1995. "Hotelling Location Problems with Directional Constraints: An Application to Television News Scheduling," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 121-24, March.
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