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Spatial Equilibrium in a State Space Approach to Demand Uncertainty

Author

Listed:
  • Kieron J. Meagher

    () (School of Economics, The University of New South Wales)

  • Klaus G. Zauner

    (University of York)

Abstract

Firms are likely to be uncertain about consumer preferences when launching products. The existing literature models preference uncertainty as an additive shock to the consumer distribution in a characteristic space model. The additive shock only shifts the mean of the consumers' ideal points. We generalize this approach to a state space model in which a vector of parameters can give rise to di erent distributions of consumer tastes in di erent states, allowing other moments of the consumer density to be uncertain. An equilibrium existence result is given. In the case of symmetric distributions, the unique subgame-perfect equilibrium can be described by a simple closed-form solution.

Suggested Citation

  • Kieron J. Meagher & Klaus G. Zauner, 2007. "Spatial Equilibrium in a State Space Approach to Demand Uncertainty," Discussion Papers 2007-19, School of Economics, The University of New South Wales.
  • Handle: RePEc:swe:wpaper:2007-19
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    File URL: http://wwwdocs.fce.unsw.edu.au/economics/Research/WorkingPapers/2007_19.pdf
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    Keywords

    Location; Product Di erentiation; Uncertainty; Hotelling;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • R39 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other

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