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Price-sensitive demand and market entry

Listed author(s):
  • Gu, Yiquan
  • Rasch, Alexander
  • Wenzel, Tobias

This paper revisits the optimal entry decision in a differentiated product market where customer demand is price-sensitive and depends on a per-unit transport cost. We show that too few firms may enter for high entry cost and high transport cost compared to the socially optimal outcome.

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File URL: https://www.econstor.eu/bitstream/10419/103374/1/800327349.pdf
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Paper provided by University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 165.

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Date of creation: 2014
Handle: RePEc:zbw:dicedp:165
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  1. Ricardo Biscaia & Isabel Mota, 2013. "Models of spatial competition: A critical review," Papers in Regional Science, Wiley Blackwell, vol. 92(4), pages 851-871, November.
  2. Gu, Yiquan & Wenzel, Tobias, 2009. "A note on the excess entry theorem in spatial models with elastic demand," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 567-571, September.
  3. 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.
  4. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  5. Janssen, Maarten C.W. & Karamychev, Vladimir A. & van Reeven, Peran, 2005. "Multi-store competition: Market segmentation or interlacing?," Regional Science and Urban Economics, Elsevier, vol. 35(6), pages 700-714, November.
  6. R. Rothschild, 1997. "Product differentiation and cartel stability: Chamberlin versus Hotelling," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 31(3), pages 259-271.
  7. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  8. Matsumura, Toshihiro & Okamura, Makoto, 2006. "A note on the excess entry theorem in spatial markets," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 1071-1076, September.
  9. 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.
  10. Shilony, Yuval, 1981. "Hotelling's competition with general customer distributions," Economics Letters, Elsevier, vol. 8(1), pages 39-45.
  11. Stefano Colombo, 2016. "Location choices with a non-linear demand function," Papers in Regional Science, Wiley Blackwell, vol. 95, pages 215-226, March.
  12. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
  13. Michael Sattinger, 1984. "Value of an Additional Firm in Monopolistic Competition," Review of Economic Studies, Oxford University Press, vol. 51(2), pages 321-332.
  14. Adriaan Hendrik van der Weijde & Erik T. Verhoef & Vincent A. C. van den Berg, 2014. "A Hotelling Model with Price-sensitive Demand and Asymmetric Distance Costs The Case of Strategic Transport Scheduling," Journal of Transport Economics and Policy, University of Bath, vol. 48(2), pages 261-277, May.
  15. Toshihiro Matsumura, 2000. "Entry regulation and social welfare with an integer problem," Journal of Economics, Springer, vol. 71(1), pages 47-58, February.
  16. Yongmin Chen & Michael H. Riordan, 2007. "Price and Variety in the Spokes Model," Economic Journal, Royal Economic Society, vol. 117(522), pages 897-921, July.
  17. Esteves, Rosa-Branca & Reggiani, Carlo, 2014. "Elasticity of demand and behaviour-based price discrimination," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 46-56.
  18. Rasch, Alexander & Herre, Jesko, 2013. "Customer-side transparency, elastic demand, and tacit collusion under differentiation," Information Economics and Policy, Elsevier, vol. 25(1), pages 51-59.
  19. Ralph M. Braid, 2014. "Search costs decrease prices in a model of spatial competition," Papers in Regional Science, Wiley Blackwell, vol. 93(1), pages 125-139, March.
  20. Matsumura, Toshihiro & Okamura, Makoto, 2006. "Equilibrium number of firms and economic welfare in a spatial price discrimination model," Economics Letters, Elsevier, vol. 90(3), pages 396-401, March.
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