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A Spatial Model of Perfect Competition

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  • Dimitrios Xefteris
  • Nicholas Ziros

Abstract

This paper employs the theory of strategic market games (enhanced with a spatial dimension) in order to study the issue of market location in a perfectly competitive setup. In this framework, each player decides strategically where and what quantities she wishes to trade and, hence, the market structure (or simply the distribution of the active trading posts and prices) emerges endogenously. We conduct a comprehensive analysis for a class of simple games with a continuum of traders and we show that (i) not all market structures can support a Nash equilibrium, (ii) at least some multi-market structures can support a Nash equilibrium and (iii) prices in a multi-market Nash equilibrium, generically, diverge.

Suggested Citation

  • Dimitrios Xefteris & Nicholas Ziros, 2014. "A Spatial Model of Perfect Competition," University of Cyprus Working Papers in Economics 05-2014, University of Cyprus Department of Economics.
  • Handle: RePEc:ucy:cypeua:05-2014
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    File URL: http://papers.econ.ucy.ac.cy/RePEc/papers/05-14.pdf
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    References listed on IDEAS

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    Keywords

    Spatial model; Market locations; Strategic market games; Perfect competition.;

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