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Full or partial market coverage? A note on spatial competition with elastic demand

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  • Giovanni Nero

    (Institute of Transportation Studies, University of California at Berkeley, Berkeley, CA, USA)

Abstract

In this paper, a spatial model is used to endogenously determine product locations and prices when consumers have an elastic demand with a finite reservation price. I show under which condition a two-stage Bertrand-Nash equilibrium yields maximal product differentiation with full market covering. Additionally, this paper highlights the effects of a change in the reservation price and in the utility loss rate on the equilibrium values of the model. The ambiguous effect of a change in the utility loss rate on prices constitutes a rather puzzling result. Copyright © 1999 John Wiley & Sons, Ltd.

Suggested Citation

  • Giovanni Nero, 1999. "Full or partial market coverage? A note on spatial competition with elastic demand," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 20(2), pages 107-111.
    • Handle: RePEc:wly:mgtdec:v:20:y:1999:i:2:p:107-111
    DOI: 10.1002/(SICI)1099-1468(199903)20:2<107::AID-MDE921>3.0.CO;2-C
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    References listed on IDEAS

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    1. Constantatos, Christos & Perrakis, Stylianos, 1997. "Vertical differentiation: Entry and market coverage with multiproduct firms," International Journal of Industrial Organization, Elsevier, vol. 16(1), pages 81-103, November.
    2. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    3. al-Nowaihi, Ali & Norman, George, 1994. "Product selection by quantity-setting firms," International Journal of Industrial Organization, Elsevier, vol. 12(4), pages 473-494, December.
    4. Neven, Damien, 1985. "Two Stage (Perfect) Equilibrium in Hotelling's Model," Journal of Industrial Economics, Wiley Blackwell, vol. 33(3), pages 317-325, March.
    5. 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. Esteves, Rosa-Branca & Reggiani, Carlo, 2014. "Elasticity of demand and behaviour-based price discrimination," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 46-56.

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