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Location and Product Quality

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  • Vettas, Nikolaos

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Abstract

We examine a horizontal product differentiation duopoly model where firms are also differentiated with respect to the quality of their products. Firms first choose their locations and then compete in prices. It is shown that, whereas the low quality firm prefers to locate as far as possible from its competitor, the same is not true for the high quality firm, unless the quality difference is small enough. In addition, the paper suggests an explanation for spatial agglomeration based on incomplete informati on considerations. Because it is less costly for a high quality firm to locate close to another firm, choosing a location close to an existing firm signals high quality.

Suggested Citation

  • Vettas, Nikolaos, 1997. "Location and Product Quality," Working Papers 97-29, Duke University, Department of Economics.
  • Handle: RePEc:duk:dukeec:97-29
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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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