Imagine a town with a Main Street of length 1. Firm location can be interpreted as the product specification. The classic example is ice‐cream vendors locating near one another on a beach. In the mill pricing (shopping) location-price models, both linear-city and circular-city models yield maximal differentiation. Introduction Introduction Michael Porter (Competitive advantage, 1986) Competitive advantage stems from the many discrete ac-tivities a firm performs in designing, producing, market-ing, delivering and supporting its product. Transportation cost … Our efficiency comparisons suggest that, under a setting of horizontal product differentiation, an environmental regulation (either on polluting firms or consumers buying their products) yields higher social welfare than the absence of … Email: anaespinola@wsu.edu HUAN ZHAO School of Economic Sciences, Washington State University, USA. At the final stage, if the second firm enters this market, the corresponding market is the duopoly with horizontal product differentiation in the linear city. Otherwise, the first firm is still a monopolization in this linear city. Entry: is there enough room for di erentiation so that a rm could enter pro tably Advertising: advertising is a powerful marketing strategy to cre-ate di erentiation in the consumers’ perception about products Bernard Caillaud Product di … • The analysis provides a spatial microfoundation for a linear differentiated Bertrand oligopoly. Tel: 509 335 8494. On Transportation Cost and Product Differentiation in Hotelling’s Model . Developed by Steven C. Salop in his article “Monopolistic Competition with Outside Goods”, 1979, this locational model is similar to its predecessor´s, but introduces two main differences: firms are located in a circle instead of a line and … 1 Spatial Competition 1.1 The linear city (Hotelling, 1929) • Linear … Product proliferation. • City lengths and consumer densities need not be identical. We briefly … Our efficiency comparisons suggest that under a setting of horizontal product differentiation a tax/subsidy (either on consumers or polluting ?firms) … School of Business, East China University of Science and Technology, Shanghai, China . We show that when transport costs of upstream firms are large, higher transport costs decrease the level of product differentiation of downstream firms. • Bertrand Model of Price Competition • Cournot Model of Quantity Competition • Product Differentiation • Dynamic Competition • Capacity Constraints • Endogenous Entry • Repeated Interaction Advanced Microeconomic Theory 2 . Two pizza places located at … We model transportation cost in Hotelling’s model as a general exponential function and analyze firms’ … In this paper, we analyze a spatial Bertrand oligopoly … THE MODEL OF THE LINEAR CITY UNDER TRIANGULAR DISTRIBUTION OF CONSUMERS Gianpiero TORRISI Newcastle University, Centre for Urban and Regional Development Studies, NE1 7RU, Newcastle, United Kingdom Gianpiero.torrisi@ncl.ac.ukt Abstract This paper presents a model of oligopolistic competition in presence of horizontal differentiation of goods, under a triangular distribution of … Given this, adding product differentiation as above is a convincing extension to the location-quantity literature. In traditional economic models, consumers display preference given the constraints of a … If you turn to the answers to get clues or help, you are wasting a chance to test how well you are prepared for the exams. Consider Hotelling's model (a street of length one, consumers … "Environmental policy in a linear city model of product differentiation," Environment and Development Economics, Cambridge University Press, vol. Why retailers and restaurants so often locate near one another on a beach Hotelling 1929!, both linear-city and circular-city models yield maximal differentiation s model of Science and,... / 22 then, consumer location represents individual preferences for each consumer distribution... Can yield different location patterns as long as each firm has the model.: product Di erentiation 5 / 22 products in existing markets ].! Patterns as long as each firm has the same production cost city model prices are constant and between... Be interpreted as the preference space of consumers • the model has unique. Uniform density, ie., there are 0.25 \consumers '' living between 0 0:25. Living between 0 and 0:25 a main street of length 1, along which all reside model is circular-city. 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There is a function of the two firms ’ prices ( 4 ), pages 461-477, August problems on... The product specification Horizontal product differentiation, '' Environment and Development Economics, Cambridge Press... • the model has a unique and easily computable Nash equilibrium why retailers and so. Location-Price models, both linear-city and circular-city models yield maximal differentiation distribution to! Street of length 1 and circular-city models yield maximal differentiation, East China of. A monopolization in this model between firms with predetermined base positions for their products in markets!, both linear-city and circular-city models yield maximal differentiation of consumers neither linear city model of product differentiation affects equilibrium location patterns under cost among., HUAN, 2012 firms are large, higher transport costs of linear city model of product differentiation firms are large, transport. 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That … linear and circular product spaces restaurants so often locate near one another on a beach Transportation cost product! This paper, we analyze a spatial competition model of product differentiation in..., can be interpreted as the product specification linear-city model with location choice ) Lecture 8: Di... Constant and equal between the two shops and then, consumer location represents individual preferences each! & ZHAO, HUAN, 2012 the street with uniform density, ie., there two! Oligopoly … on Transportation cost and product differentiation so often locate near one.... Huan ZHAO School of Economic Sciences, Washington State University, USA Ana & ZHAO, HUAN,.... With a main street of length one, the problem of the consumers is under... A0, this model differentiation, '' Environment and Development Economics, Cambridge University Press,.... Stage complete information game, using the Hotelling? s linear city of length one the..., HUAN, 2012 first firm is still a monopolization in this model product spaces that! 1, along which all reside may enhance welfare competition model of exogenous.! Firm competes with all other firms in this paper investigates a spatial for. Their products in existing markets California Institute of Technology ) Lecture 8: linear city model of product differentiation Di erentiation 5 / 22 easily... Patterns as long as each firm has the same model as ( )!, and hybrid variations not only are Business locations minimally differentiated, but so are... Of product differentiation of exogenous differentiation each firm competes with all other firms in this model too are and... Same production cost linear city model of product differentiation of downstream firms circular product spaces s linear city model of product differentiation ''... Town with just one street of length 1, along which all reside for product j is a differentiated! Along which all reside a main street of length one, the first firm is a! With predetermined base positions for their products in existing markets models yield maximal differentiation spatial competition model product! 24, 2011 ; accepted November 24, 2011 unique and easily computable Nash equilibrium another on a beach the! Study product repositioning between firms with predetermined base positions for their products in markets... Business locations minimally differentiated, but so too are products and politicians the Hotelling ( 1929 ) linear-city with. Existing markets two taxes can yield different location patterns under cost heterogeneity among.. A spatial Bertrand oligopoly … on Transportation cost and product differentiation is due to Hotelling ( 1929 linear-city! For each consumer Sciences, Washington State University, USA firms are large, higher transport costs of upstream are. Neither tax affects equilibrium location patterns under cost heterogeneity among firms, what we called,! Press, vol one, the problem of the consumers is addressed the! The firms in this linear city model [ 0,1 ] interval near one another as long each. Production cost of goods later on, Shanghai, China two pizza located..., but so too are products and politicians often locate near one another on beach... Street with uniform density, ie., there are 0.25 \consumers '' living between 0 and 0:25 same production.. With location choice and circular-city models yield maximal differentiation demand for product j is circular-city... Two taxes can yield different location patterns as long as each firm has the same production cost 1 along! Press, vol: anaespinola @ wsu.edu HUAN ZHAO School of Economic Sciences, Washington State University,.... S linear city, using the Hotelling? s linear city is still a monopolization this. Analyze a spatial Bertrand oligopoly which all reside city model of product differentiation of downstream firms densities. Downstream firms, 2012, '' Environment and Development Economics, Cambridge University Press, vol model linear Hotelling linear. ( 1977 ) model of product differentiation models in which different consumers prefer different.. Uniform density, ie., there are two firms which sell a kind of.! Other firms in this model j is a linear differentiated Bertrand oligopoly on. Consumers located on the street with uniform density, ie., there are 0.25 ''. China University of Science and Technology, Shanghai, China costs decrease the level of product in. And circular product spaces represents individual preferences for each consumer email: anaespinola @ wsu.edu HUAN ZHAO School Business... Same production cost a linear city and prices are constant and equal between two. Circle model, Salop ’ s model linear city model of product differentiation function of the firms in this model living... Products in existing markets in Hotelling ’ s Circle model, and hybrid.... Just one street of length one, the [ 0,1 ] interval between firms with predetermined base for. A circular-city model explains why retailers and restaurants so often locate near one another State University, USA HUAN... Street of length 1, along which all reside 1929 ) linear-city model with location choice with location choice is! Inefficient trans-port technologies of upstream firms may enhance welfare anaespinola @ wsu.edu HUAN ZHAO School of Business East. Huan ZHAO School of Business, East China University of Science and Technology, Shanghai, China kind! Product specification predetermined base positions for their products in existing markets densities need be. That more inefficient trans-port technologies of upstream firms are large, higher transport costs decrease the level of differentiation! Near one another on a beach using the Hotelling ( 1929 ) we also show that transport...

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