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Robust Equilibria in Location Games

Author

Listed:
  • Berno Buechel

    () (University of Hamburg)

  • Nils Roehl

    () (University of Paderborn)

Abstract

In the framework of spatial competition, two or more players strategically choose a location in order to attract consumers. It is assumed standardly that consumers with the same favorite location fully agree on the ranking of all possible locations. To investigate the necessity of this questionable and restrictive assumption, we model heterogeneity in consumers' distance perceptions by individual edge lengths of a given graph. A profile of location choices is called a ``robust equilibrium'' if it is a Nash equilibrium in several games which differ only by the consumers' perceptions of distances. For a finite number of players and any distribution of consumers, we provide a full characterization of all robust equilibria and derive structural conditions for their existence. Furthermore, we discuss whether the classical observations of minimal differentiation and inefficiency are robust phenomena. Thereby, we find strong support for an old conjecture that in equilibrium firms form local clusters.

Suggested Citation

  • Berno Buechel & Nils Roehl, 2013. "Robust Equilibria in Location Games," Working Papers CIE 58, Paderborn University, CIE Center for International Economics.
  • Handle: RePEc:pdn:ciepap:58
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    File URL: http://groups.uni-paderborn.de/wp-wiwi/RePEc/pdf/ciepap/WP58.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Buechel, Berno & Klein, Jan, 2014. "Do Consumers' Preferences Really Matter? - A Note on Spatial Competition with Restricted Strategies," MPRA Paper 55288, University Library of Munich, Germany.
    2. Heijnen, Pim & Soetevent, Adriaan R., 2018. "Price competition on graphs," Journal of Economic Behavior & Organization, Elsevier, vol. 146(C), pages 161-179.
    3. repec:eee:transe:v:115:y:2018:i:c:p:87-109 is not listed on IDEAS
    4. repec:eee:ejores:v:269:y:2018:i:1:p:146-158 is not listed on IDEAS
    5. Berno Buechel & Jan F. Klein, 2016. "Restrictions in Spatial Competition: The Effects on Firms and Consumers," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 33(1), pages 157-172, August.
    6. repec:eee:ejores:v:273:y:2019:i:3:p:1109-1118 is not listed on IDEAS

    More about this item

    Keywords

    spatial competition; Hotelling-Downs; networks; graphs; Nash equilibrium; median; minimal differentiation;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D49 - Microeconomics - - Market Structure, Pricing, and Design - - - Other
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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