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Location in a vertically differentiated industry

  • BACCHIEGA, Emmanuele
  • MINNITI, Antonio

We analyze a model of a vertically differentiated duopoly with two regions. These two locations differ for the market size or for the distribution of the willingness to pay for quality of their consumers. Firms sequentially choose to settle in one region and then simultaneously compete in prices, selling their products both on the local market and on the foreigner one. We show that the decision whether to agglomerate or not crucially depends on the extent of regions' asymmetries, but, counter intuitively, there are parametric configurations in which the model predicts that the leader (the first firm choosing location)settles either in the poorer or in the smaller region, leaving the other one to the follower. Welfare analysis completes the paper.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2005071.

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Date of creation: 00 Oct 2005
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Handle: RePEc:cor:louvco:2005071
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  1. James W. Friedman & Jacques-Francois Thisse, 1993. "Partial Collusion Fosters Minimum Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 631-645, Winter.
  2. Kats, Amoz, 1995. "More on Hotelling's stability in competition," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 89-93, March.
  3. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  4. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  5. d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "On Hotelling's "Stability in competition"," CORE Discussion Papers RP -385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Victor Ginsburgh & André De Palma & Yorgo Papageorgiou & Jacques-François Thisse, 1985. "The principle of minimum differentiation holds under sufficient heterogeneity," ULB Institutional Repository 2013/1759, ULB -- Universite Libre de Bruxelles.
  7. d'ASPREMONT, C. & GABSZEZWICZ, Jean J. & THISSE, J.-F., . "Product differences and prices," CORE Discussion Papers RP -508, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Schmitt, Nicolas, 1995. "Product Imitation, Product Differentiation and International Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 583-608, August.
  9. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  10. Anderson, Simon P & Neven, Damien J, 1991. "Cournot Competition Yields Spatial Agglomeration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 793-808, November.
  11. Pal, Debashis, 1998. "Does Cournot competition yield spatial agglomeration?," Economics Letters, Elsevier, vol. 60(1), pages 49-53, July.
  12. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, June.
  13. Hamilton, Jonathan H. & Thisse, Jacques-Francois & Weskamp, Anita, 1989. "Spatial discrimination : Bertrand vs. Cournot in a model of location choice," Regional Science and Urban Economics, Elsevier, vol. 19(1), pages 87-102, February.
  14. Andaluz, Joaquin, 2000. "On protection and vertical product differentiation," Regional Science and Urban Economics, Elsevier, vol. 30(1), pages 77-97, January.
  15. Jehiel, Philippe, 1992. "Product differentiation and price collusion," International Journal of Industrial Organization, Elsevier, vol. 10(4), pages 633-641, December.
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