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Models of Spatial Competition: A critical review

  • Ricardo Biscaia
  • Isabel Mota


According to Duranton (2008), the main focus of spatial economics is the location choice of the economic agents. In order to explain the location and the agglomeration of agents in certain locations, one must relax the core assumptions of the neoclassic competitive framework. According to Fujita and Thisse (2002), three alternatives emerged and had huge attention in the literature: the assumption of heterogeneity of locations, as in comparative advantage models or in pioneering static location models; the externality models, in which economic activity endogenously generates spillovers that motivates the agglomeration of the agents; the assumption of imperfect markets, implying that the agents have to interact with each other, as in spatial competition models or in the monopolistic competition approach. This review will focus on the development of spatial competition models. Specifically, the main purpose is to study models in which the location choice by firms plays a major role. Therefore, after a brief review of the roots of spatial competition models, this paper intends to offer a critical analysis over the recent developments in spatial competition modeling. The starting point is the recognition of the increased importance of this topic through the quantification of the research in this field by using bibliometric tools. After that, this study proceeds by identifying the main research paths within spatial competition modeling. Specifically, the type of strategie (Bertrand vs. Cournot competition) and its implications over location equilibria are discussed. Additionally, it is presented a comparison of the impact of the most studied assumptions in literature, that respect to the market (linear vs. circular), production costs, transportation costs, as well as the number of firms. Finally, the type of information (complete vs. incomplete) and its effects over the equilibria are also discussed.

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa11p1518.

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Date of creation: Sep 2011
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Handle: RePEc:wiw:wiwrsa:ersa11p1518
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  1. Espinosa Alejos, María Paz & Aguirre Pérez, Iñaki, 2003. "Product Differentiation with Consumer Arbitrage," BILTOKI 2003-04, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).
  2. Martin J Osborne & Carolyn Pitchik, 1985. "Equilibrium in Hotelling's Model of Spatial Competition," Department of Economics Working Papers 1985-02, McMaster University.
  3. Christou, Charalambos & Vettas, Nikolaos, 2005. "Location choices under quality uncertainty," Mathematical Social Sciences, Elsevier, vol. 50(3), pages 268-278, November.
  4. IRMEN, Andreas & THISSE, Jacques-Francois, 1997. "Competition in multi-characteristics spaces: hotelling was almost right," CORE Discussion Papers 1997053, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Victor Ginsburgh & André De Palma & Yorgo Papageorgiou & Jacques Thisse, 1985. "The principle of Minimum Differentiation Holds under Sufficient Heterogeneity," ULB Institutional Repository 2013/151087, ULB -- Universite Libre de Bruxelles.
  6. Hamilton, Jonathan H & MacLeod, W Bentley & Thisse, Jacques-Francois, 1991. "Spatial Competition and the Core," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 925-37, August.
  7. HAMILTON, Jonathan H. & THISSE, Jacques-François & WESKAMP, Anita, . "Spatial discrimination. Bertrand vs. Cournot in a model of location choice," CORE Discussion Papers RP 846, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. BEN-AKIVA, Moshe & DE PALMA, André & THISSE, Jacques-François, . "Spatial competition with differentiated products," CORE Discussion Papers RP 845, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Boyer, Marcel & Laffont, Jean-Jacques & Mahenc, Philippe & Moreaux, Michel, 1994. "Location distortions under incomplete information," Regional Science and Urban Economics, Elsevier, vol. 24(4), pages 409-440, August.
  10. Tropeano, Jean-Philippe, 2001. "Information asymmetry as a source of spatial agglomeration," Economics Letters, Elsevier, vol. 70(2), pages 273-281, February.
  11. Anderson, Simon P, 1988. "Equilibrium Existence in the Linear Model of Spatial Competition," Economica, London School of Economics and Political Science, vol. 55(220), pages 479-91, November.
  12. Toshihiro Matsumura & Takao Ohkawa & Daisuke Shimizu, 2005. "Partial Agglomeration or Dispersion in Spatial Cournot Competition," Southern Economic Journal, Southern Economic Association, vol. 72(1), pages 224–235, July.
  13. Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, edition 2, number 9780199243273.
  14. ANDERSON, Simon P. & de PALMA, André & THISSE, Jacques-François, . "Spatial price policies reconsidered," CORE Discussion Papers RP 838, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  15. Mayer, T., 1999. "Spatial Cournot Competition and Heterogeneous Production Costs Across Locations," Papiers d'Economie Mathématique et Applications 1999.89, Université Panthéon-Sorbonne (Paris 1).
  16. Boyer, Marcel & Mahenc, Phillippe & Moreaux, Michel, 2003. "Asymmetric information and product differentiation," Regional Science and Urban Economics, Elsevier, vol. 33(1), pages 93-113, January.
  17. Anderson, Simon P. & Goeree, Jacob K. & Ramer, Roald, 1997. "Location, Location, Location," Journal of Economic Theory, Elsevier, vol. 77(1), pages 102-127, November.
  18. Valletti, Tommaso M., 2002. "Location choice and price discrimination in a duopoly," Regional Science and Urban Economics, Elsevier, vol. 32(3), pages 339-358, May.
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  21. Matsushima, Noriaki, 2001. "Cournot competition and spatial agglomeration revisited," Economics Letters, Elsevier, vol. 73(2), pages 175-177, November.
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  27. Alessandra Chirco & Marcella Scrimitore & Corrado Benassi, 2007. "Spatial Discrimination with Quantity Competition and High Transportation Costs: a Note," Economics Bulletin, AccessEcon, vol. 12(1), pages 1-7.
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  30. Anderson, Simon P & Engers, Maxim, 1994. "Spatial Competition with Price-Taking Firms," Economica, London School of Economics and Political Science, vol. 61(242), pages 125-36, May.
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