Spatial Cournot Competition and Heterogeneous Production Costs Across Locations

The model developed in this paper extends the strategic location framework under Cournot competition in order to allow for different production costs across locations. The subgame perfect equilibria where two firms choose first a location and then quantities is analyzed under general production cost distributions. It appears that central agglomeration (the equilibrium under the uniform production costs distribution) only arises in the particular case where the center of the segment yields the minimal production cost. If the production cost distribution is globally convex, an agglomerated equilibrium exists at an intermediary point between the locations minimizing production cost and transport cost, respectively. The conditions are also derived for the existence of symmetric dispersed location equilibria. Two specific production cost distributions are analyzed: the linear and the inverted U one. It is demonstrated that the unique equilibrium in the linear distribution case is an agglomerated equilibrium and that the inverted U distribution yields a symmetric location of firms in equilibrium.