Location Equilibria Under Alternative Solution Concepts
We provide a comparison of the location equilibria in a duopoly model under three alternative solution concepts. The first one is a simultaneous price and location game, the second is a two-stage location-then-price game. Third, we introduce a new solution concept, a two-stage price-then-location game. It is well known that no (pure strategy) equilibrium usually exists under the first two solution concepts when products are homogenous. We show this is also true for the third concept. However, introducing sufficient product heterogeneity in a specific manner restores the existence of equilibrium in each case. We argue that, under certain "regularity" conditions, equilibrium locations are farther apart under the location-then-price game than in the simultaneous game. We provide simulation results for a specific functional form (the logit model) which illustrates this result, and show that locations in the price-then-location game may be either closer or farther from the center than simultaneous game. Another contribution of the paper is to introduce a no-purchase option into the logit model of spatial competition.
|Date of creation:||Nov 1989|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.kellogg.northwestern.edu/research/math/
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jonathan H Hamilton & James F. Klein & Eytan Sheshinski & Steven M. Slutsky, 1994. "Quantity Competition in a Spatial Model," Canadian Journal of Economics, Canadian Economics Association, vol. 27(4), pages 903-17, November.
- repec:cup:cbooks:9780521282444 is not listed on IDEAS
- Friedman, James, 1993.
Handbook of Mathematical Economics,
in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 11, pages 491-534
- Anderson, S., 1986.
"Equilibrium existence in the linear model of spatial competition,"
CORE Discussion Papers
1986013, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Anderson, Simon P, 1988. "Equilibrium Existence in the Linear Model of Spatial Competition," Economica, London School of Economics and Political Science, vol. 55(220), pages 479-91, November.
- Eaton, B Curtis & Lipsey, Richard G, 1978. "Freedom of Entry and the Existence of Pure Profit," Economic Journal, Royal Economic Society, vol. 88(351), pages 455-69, September.
- David J. Salant, 1986. "Equilibrium in a Spatial Model of Imperfect Competition with Sequential Choice of Locations and Quantities," Canadian Journal of Economics, Canadian Economics Association, vol. 19(4), pages 685-715, November.
- ANDERSON, S.P. & de PALMA, A. & THISSE, J.-F., 1987. "Spatial price policies and duopoly," CORE Discussion Papers 1987037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Anderson, Simon P & de Palma, Andre, 1988. "Spatial Price Discrimination with Heterogeneous Products," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 573-92, October.
- Novshek, William, 1980. "Equilibrium in simple spatial (or differentiated product) models," Journal of Economic Theory, Elsevier, vol. 22(2), pages 313-326, April.
When requesting a correction, please mention this item's handle: RePEc:nwu:cmsems:885. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fran Walker)
If references are entirely missing, you can add them using this form.