IDEAS home Printed from https://ideas.repec.org/p/zbw/dicedp/43.html

Price-dependent demand in spatial models

Author

Listed:
  • Gu, Yiquan
  • Wenzel, Tobias

Abstract

This paper introduces price-dependent individual demand into the circular city model of product differentiation. We show that for any finite number of firms, a unique symmetric price equilibrium exists provided that demand functions are not too convex. As in the case of unit demand, the number of firms under free entry decreases in the fixed cost of entry while increases in the transportation cost of consumers. However, this number is no longer always in excess of the socially optimal level. Insufficient entry occurs when the fixed and transportation costs are high.

Suggested Citation

  • Gu, Yiquan & Wenzel, Tobias, 2012. "Price-dependent demand in spatial models," DICE Discussion Papers 43, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    • Handle: RePEc:zbw:dicedp:43
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/55139/1/684775085.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(2), pages 217-235.
    2. Neven, Damien J., 1986. "On Hotelling's competition with non-uniform customer distributions," Economics Letters, Elsevier, vol. 21(2), pages 121-126.
    3. 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.
    4. Suleymanova Irina & Wey Christian, 2011. "Bertrand Competition in Markets with Network Effects and Switching Costs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-58, September.
    5. Rath, Kali P. & Zhao, Gongyun, 2001. "Two stage equilibrium and product choice with elastic demand," International Journal of Industrial Organization, Elsevier, vol. 19(9), pages 1441-1455, November.
    6. Antoni Calvó‐Armengol & Yves Zenou, 2002. "The Importance of the Distribution of Consumers in Horizontal Product Differentiation," Journal of Regional Science, Wiley Blackwell, vol. 42(4), pages 793-803.
    7. Matsumura Toshihiro & Matsushima Noriaki, 2010. "When Small Firms Fight Back Against Large Firms in R&D Activities," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-42, September.
    8. 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.
    9. Madden Paul & Pezzino Mario, 2011. "Oligopoly on a Salop Circle with Centre," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-30, January.
    10. 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.
    11. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    12. 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.
    13. 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.
    14. 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.
    15. Shilony, Yuval, 1981. "Hotelling's competition with general customer distributions," Economics Letters, Elsevier, vol. 8(1), pages 39-45.
    16. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    17. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
    18. ANDERSON, Simon P. & de PALMA, André & THISSE, Jacques-François, 1992. "Interpretations of the logit discrete choice models and the theory of product differentiation," LIDAM Reprints CORE 1017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    19. Toshihiro Matsumura, 2000. "Entry regulation and social welfare with an integer problem," Journal of Economics, Springer, vol. 71(1), pages 47-58, February.
    20. Anderson, Simon P. & de Palma, Andre, 2000. "From local to global competition," European Economic Review, Elsevier, vol. 44(3), pages 423-448, March.
    21. Norman, George & Thisse, Jacques-Francois, 1996. "Product Variety and Welfare under Tough and Soft Pricing Regimes," Economic Journal, Royal Economic Society, vol. 106(434), pages 76-91, January.
    22. Serhan Ziya & Hayriye Ayhan & Robert D. Foley, 2004. "Relationships Among Three Assumptions in Revenue Management," Operations Research, INFORMS, vol. 52(5), pages 804-809, October.
    23. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gu, Yiquan & Wenzel, Tobias, 2011. "Transparency, price-dependent demand and product variety," Economics Letters, Elsevier, vol. 110(3), pages 216-219, March.
    2. 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.
    3. Yiquan Gu & Alexander Rasch & Tobias Wenzel, 2016. "Price-sensitive demand and market entry," Papers in Regional Science, Wiley Blackwell, vol. 95(4), pages 865-875, November.
    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. Dominik Boddin & Frank Stähler, 2018. "The Organization of International Trade," CESifo Working Paper Series 7378, CESifo.
    6. Fischer, Christian & Rasch, Alexander, 2018. "Complex pricing and consumer-side transparency," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181642, Verein für Socialpolitik / German Economic Association.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yiquan Gu & Alexander Rasch & Tobias Wenzel, 2016. "Price-sensitive demand and market entry," Papers in Regional Science, Wiley Blackwell, vol. 95(4), pages 865-875, November.
    2. Yiquan Gu & Tobias Wenzel, 2009. "Product Variety, Price Elasticity of Demand and Fixed Cost in Spatial Models," Ruhr Economic Papers 0092, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    3. Gu, Yiquan & Wenzel, Tobias, 2009. "Product variety, price elasticity of demand and fixed cost in spatial models," FAU Discussion Papers in Economics 03/2009, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    4. 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.
    5. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107069978, January.
    6. Gu, Yiquan & Rasch, Alexander & Wenzel, Tobias, 2022. "Consumer salience and quality provision in (un)regulated public service markets," Regional Science and Urban Economics, Elsevier, vol. 93(C).
    7. Creane, Anthony & Manduchi, Agostino, 2022. "Informative advertising in monopolistically competitive markets," International Journal of Industrial Organization, Elsevier, vol. 83(C).
    8. Parenti, Mathieu & Ushchev, Philip & Thisse, Jacques-François, 2017. "Toward a theory of monopolistic competition," Journal of Economic Theory, Elsevier, vol. 167(C), pages 86-115.
    9. Keisuke Hattori & Takeshi Yoshikawa, 2016. "Free entry and social inefficiency under co-opetition," Journal of Economics, Springer, vol. 118(2), pages 97-119, June.
    10. Yiquan Gu & Tobias Wenzel, 2007. "A Note on the Excess Entry Theorem in Spatial Models with Elastic Demand," Ruhr Economic Papers 0033, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    11. Javier Elizalde & Markus Kinateder & Ignacio Rodríguez-Carreño, 2015. "Entry regulation, firm’s behaviour and social welfare," European Journal of Law and Economics, Springer, vol. 40(1), pages 13-31, August.
    12. Esteves, Rosa-Branca & Carballo-Cruz, Francisco, 2025. "A general framework for retailer competition under elastic demand and quantity-dependent transport costs," Journal of Retailing and Consumer Services, Elsevier, vol. 87(C).
    13. Fraser Summerfield, 2016. "Matching Skill and Tasks: Cyclical Fluctuations in the Overqualification of New Hires," Working Paper series 16-08, Rimini Centre for Economic Analysis.
    14. Rey, Patrick & Salant, David, 2012. "Abuse of dominance and licensing of intellectual property," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 518-527.
    15. Tauman, Yair & Urbano, Amparo & Watanabe, Junichi, 1997. "A Model of Multiproduct Price Competition," Journal of Economic Theory, Elsevier, vol. 77(2), pages 377-401, December.
    16. Christou, C. & Vettas, N., 2008. "On informative advertising and product differentiation," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 92-112, January.
    17. Marjit, Sugata & Mukherjee, Arijit, 2013. "Foreign competition and social efficiency of entry," Economic Modelling, Elsevier, vol. 32(C), pages 108-112.
    18. Kevin E. Henrickson, 2012. "Spatial Competition And Strategic Firm Relocation," Economic Inquiry, Western Economic Association International, vol. 50(2), pages 364-379, April.
    19. Schiff, Nathan & Cosman, Jacob & Dai, Tianran, 2023. "Delivery in the city: Differentiated products competition among New York restaurants," Journal of Urban Economics, Elsevier, vol. 134(C).
    20. Qiang Gong & Qihong Liu & Yi Zhang, 2016. "Optimal product differentiation in a circular model," Journal of Economics, Springer, vol. 119(3), pages 219-252, November.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:dicedp:43. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/diduede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.