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Hotelling Models with Price-Sensitive Demand and Asymmetric Transport Costs: An Application to Public Transport Scheduling

Author

Listed:
  • Adriaan Hendrik van der Weijde

    (VU University Amsterdam)

  • Erik T. Verhoef

    (VU University Amsterdam)

  • Vincent A. C. van den Berg

    (VU University Amsterdam)

Abstract

See also the publication in the 'Journal of Transport Economics and Policy' , 2014, 48(2), 261-277. We formulate a horizontal differentiation model with price-sensitive demand and asymmetric transport costs, in the context of transport scheduling. Two competitors choose fares and departure times in a fixed time interval. Consumers are distributed uniformly along the interval; their location indicates their desired departure time. In a standard Hotelling model, locations are chosen before prices. In our context, the opposite order is also conceivable, but we show that it does not result in a Nash equilibrium; the same is true for a game in both variables are chosen simultaneously. We also discuss Stackelberg game structures and second-best regulation. We conclude that the addition of price-sensitive demand results in equilibria in the traditional Hotelling model with price setting; there, services are scheduled closer together than optimal. We also show that it is possible to include asymmetric schedule delay functions. Our results show that departure times can be strategic instruments. Optimal regulatory strategies depend on the value of schedule delay, and on whether the regulator can commit.

Suggested Citation

  • Adriaan Hendrik van der Weijde & Erik T. Verhoef & Vincent A. C. van den Berg, 2012. "Hotelling Models with Price-Sensitive Demand and Asymmetric Transport Costs: An Application to Public Transport Scheduling," Tinbergen Institute Discussion Papers 12-119/VIII, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20120119
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    References listed on IDEAS

    as
    1. Stefano Colombo, 2011. "Spatial price discrimination in the unidirectional Hotelling model with elastic demand," Journal of Economics, Springer, vol. 102(2), pages 157-169, March.
    2. Small, Kenneth A, 1982. "The Scheduling of Consumer Activities: Work Trips," American Economic Review, American Economic Association, vol. 72(3), pages 467-479, June.
    3. Tönu Puu, 2002. "Hotelling's "Ice cream dealers" with elastic demand," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 36(1), pages 1-17.
    4. Gu Yiquan & Wenzel Tobias, 2012. "Price-Dependent Demand in Spatial Models," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-26, March.
    5. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
    6. Helge Sanner, 2005. "Instability in Competition: Hotelling Re-reconsidered," Volkswirtschaftliche Diskussionsbeiträge 79, Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät.
    7. Peran van Reeven & Maarten C. W. Janssen, 2006. "Stable Service Patterns in Scheduled Transport Competition," Journal of Transport Economics and Policy, University of Bath, vol. 40(1), pages 135-160, January.
    8. Cancian, Maria & Bills, Angela & Bergstrom, Theodore, 1995. "Hotelling Location Problems with Directional Constraints: An Application to Television News Scheduling," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 121-124, March.
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    More about this item

    Keywords

    horizontal differentiation; scheduling; transport;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General

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