Welfare properties of spatial competition with location-dependent costs
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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- Tabuchi, Takatoshi & Thisse, Jacques-Francois, 1995. "Asymmetric equilibria in spatial competition," International Journal of Industrial Organization, Elsevier, vol. 13(2), pages 213-227.
- 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.
- Ziss, Steffen, 1993. "Entry deterrence, cost advantage and horizontal product differentiation," Regional Science and Urban Economics, Elsevier, vol. 23(4), pages 523-543, September.
- 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.
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