Dynamics and equilibria under incremental horizontal differentiation on the Salop circle
We study product differentiation on a Salop circle when firms relocate incrementally due to bounded rationality. We prove that, under common assumptions on demand, firms relocate only when two or more firms target the same niche. In any other case, there is no incentive for any firm to relocate incrementally. We prove that all distributions in which firms are sufficiently far apart in product space are unstable Nash equilibria. We prove, in particular, that the classical equidistant distribution is an unstable Nash equilibrium that cannot emerge from another distribution. However, we show that if each firm is engaged in head-on rivalry with one other competitor, the industry converges to an ’equidistantesque’ equilibrium of clusters of rivals.
|Date of creation:||Apr 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
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.:
- Camacho-Cuena, Eva & Garcia-Gallego, Aurora & Georgantzis, Nikolaos & Sabater-Grande, Gerardo, 2005. "Buyer-seller interaction in experimental spatial markets," Regional Science and Urban Economics, Elsevier, vol. 35(2), pages 89-108, March.
- Gupta, Barnali & Lai, Fu-Chuan & Pal, Debashis & Sarkar, Jyotirmoy & Yu, Chia-Ming, 2004. "Where to locate in a circular city?," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 759-782, June.
- Tabuchi, T. & Thisse, J.-F., .
"Asymetric equilibria in spatial competition,"
CORE Discussion Papers RP
1151, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Pal, Debashis, 1998. "Does Cournot competition yield spatial agglomeration?," Economics Letters, Elsevier, vol. 60(1), pages 49-53, July.
- Jeffrey M. Perloff & Steven C. Salop, 1985.
"Equilibrium with Product Differentiation,"
Review of Economic Studies,
Oxford University Press, vol. 52(1), pages 107-120.
- Perloff, Jeffrey M & Salop, Steven, 1984. "Equilibrium with product differentiation," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt4cq0m6s3, Department of Agricultural & Resource Economics, UC Berkeley.
- Chia-Ming Yu, 2007. "Price and quantity competition yield the same location equilibria in a circular market-super-," Papers in Regional Science, Wiley Blackwell, vol. 86(4), pages 643-655, November.
- Hackner, Jonas, 1995. "Endogenous product design in an infinitely repeated game," International Journal of Industrial Organization, Elsevier, vol. 13(2), pages 277-299.
- Capozza, Dennis R & Van Order, Robert, 1980. "Unique Equilibria, Pure Profits, and Efficiency in Location Models," American Economic Review, American Economic Association, vol. 70(5), pages 1046-53, December.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716.
- Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
- Tyagi, Rajeev K, 1999. "Pricing Patterns as Outcomes of Product Positions," The Journal of Business, University of Chicago Press, vol. 72(1), pages 135-57, January.
- Akerlof, George A & Yellen, Janet L, 1985. "Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?," American Economic Review, American Economic Association, vol. 75(4), pages 708-20, September.
- Graitson, Dominique, 1982. "Spatial Competition a la Hotelling: A Selective Survey," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 13-25, September.
- Borenstein, Severin & Netz, Janet, 1999. "Why do all the flights leave at 8 am?: Competition and departure-time differentiation in airline markets," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 611-640, July.
- Bockem, Sabine, 1994. "A Generalized Model of Horizontal Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 287-98, September.
- d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, .
"On Hotelling's "Stability in competition","
CORE Discussion Papers RP
385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Economides, Nicholas, 1986. "Minimal and maximal product differentiation in Hotelling's duopoly," Economics Letters, Elsevier, vol. 21(1), pages 67-71.
- Tversky, Amos & Kahneman, Daniel, 1986. "Rational Choice and the Framing of Decisions," The Journal of Business, University of Chicago Press, vol. 59(4), pages S251-78, October.
- Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
- Paul Krugman, 1992. "A Dynamic Spatial Model," NBER Working Papers 4219, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:51449. 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: (Joachim Winter)
If references are entirely missing, you can add them using this form.