Competition by choice
This paper relates firm location choice and consumer search. Firms that cluster together attract consumers by facilitating price comparison, but clustering increases the intensity of local competition. I construct a simple model which shows that firms may choose head-on competition by locating together. In special cases, this can be the unique equilibrium outcome. I also use the model to show that price setting firms may earn more in equilibrium than quantity setting firms.
|Date of creation:||1988|
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- Edward C. Prescott & Michael Visscher, 1977. "Sequential Location among Firms with Foresight," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 378-393, Autumn.
- d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979.
"On Hotelling's "Stability in Competition","
Econometric Society, vol. 47(5), pages 1145-50, September.
- Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
- Stahl, Konrad, 1982. "Differentiated Products, Consumer Search, and Locational Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 97-113, September.
- Joseph Farrell & Garth Saloner, 1984.
"Standardization, Compatibility and Innovation,"
345, Massachusetts Institute of Technology (MIT), Department of Economics.
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