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Welfare properties of spatial competition with location-dependent costs

  • Aiura, Hiroshi
  • Sato, Yasuhiro

We analyze a two-firm spatial competition model in which firms must transport raw materials from a raw material site to their locations in order to produce. The model has two equilibrium configurations: (i) a symmetric one in which firms locates equidistantly from the raw material site, and (ii) an asymmetric one in which one firm locates at the raw material site and the other locates distantly from it. We show that these two configurations are possible as multiple equilibria, that the asymmetric equilibrium is more efficient than the symmetric one, and that the social welfare first falls then rises as transport costs decline.

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File URL: http://www.sciencedirect.com/science/article/B6V89-4PK7P0K-1/1/42de9c39d70c91d99d15203e7fb9c118
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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 38 (2008)
Issue (Month): 1 (January)
Pages: 32-48

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Handle: RePEc:eee:regeco:v:38:y:2008:i:1:p:32-48
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  1. Tabuchi, T. & Thisse, J.-F., . "Asymetric equilibria in spatial competition," CORE Discussion Papers RP 1151, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Lai, Fu-Chuan & Tsai, Jyh-Fa, 2004. "Duopoly locations and optimal zoning in a small open city," Journal of Urban Economics, Elsevier, vol. 55(3), pages 614-626, May.
  3. Matsushima, Noriaki, 2004. "Technology of upstream firms and equilibrium product differentiation," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1091-1114, November.
  4. Ziss, Steffen, 1993. "Entry deterrence, cost advantage and horizontal product differentiation," Regional Science and Urban Economics, Elsevier, vol. 23(4), pages 523-543, September.
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