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Competition by choice

Author

Listed:
  • Marc Dudey

Abstract

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.

Suggested Citation

  • Marc Dudey, 1988. "Competition by choice," International Finance Discussion Papers 327, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:327
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    File URL: http://www.federalreserve.gov/pubs/ifdp/1988/327/default.htm
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    File URL: http://www.federalreserve.gov/pubs/ifdp/1988/327/ifdp327.pdf
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    References listed on IDEAS

    as
    1. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, pages 70-83.
    2. Joseph Farrell & Garth Saloner, 1984. "Standardization, Compatibility and Innovation," Working papers 345, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. 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.
    4. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
    5. Stahl, Konrad, 1982. "Differentiated Products, Consumer Search, and Locational Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 97-113, September.
    6. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Jenny Schuettz, 2013. "Do Art Galleries Stimulate Redevelopment?," Working Paper 9121, USC Lusk Center for Real Estate.
    2. Konishi, Hideo & Sandfort, Michael T., 2003. "Anchor stores," Journal of Urban Economics, Elsevier, vol. 53(3), pages 413-435, May.
    3. Angela Chang & Shubham Chaudhuri & Jith Jayaratne, 1997. "Rational herding and the spatial clustering of bank branches: an empirical analysis," Research Paper 9724, Federal Reserve Bank of New York.
    4. Konishi, Hideo & Sandfort, Michael T., 2002. "Expanding demand through price advertisement," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 965-994, September.
    5. Prentice, David & Sibly, Hugh, 1996. "A Search-Theoretic Interpretation of Multi-outlet Retailers," The Economic Record, The Economic Society of Australia, vol. 72(219), pages 359-369, December.
    6. Jenny Schuetz & Richard K. Green, 2014. "Is The Art Market More Bourgeois Than Bohemian?," Journal of Regional Science, Wiley Blackwell, vol. 54(2), pages 273-303, March.
    7. Konishi, Hideo, 2005. "Concentration of competing retail stores," Journal of Urban Economics, Elsevier, vol. 58(3), pages 488-512, November.

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