Collusion, agglomeration, and heterogeneity of firms (original) (raw)

PRICE AND LOCATION CONJECTURES IN MEDIUM AND LONG-RUN SPATIAL COMPETITION MODELS

Journal of Regional Science, 1994

ABSTRACT. This paper examines medium-run and long-run equilibria in unbounded (circular) and bounded (linear) one-dimensional multifirm markets. A price-location adjustment model is outlined that dows simulation of the spatial equilibrium when these firms anticipate reactions from their nearest spatial rivals. Thus, the market equilibrium is derived from the interdependent but atomistic decisions of the competing firms and is not imposed by some outside observer or agency. Ail conjectures are exogenous; the three well-known price conjectures (Greenhut-Ohta, Hotelling-Smithies, and Losch) are highlighted; and the relevant comparative statics are provided.

An experiment on spatial competition with endogenous pricing

2011

Hotelling's (1929) principle of minimum differentiation and the alternative prediction that firms will maximally differentiate from their rivals in order to relax price competition have not been explicitly tested so far. We report results from experimental spatial duopolies designed to address this issue. The levels of product differentiation observed are systematically lower than predicted in equilibrium under risk neutrality and compatible with risk aversion. The observed prices are consistent with collusion attempts. Our main findings are robust to variations in three experimental conditions: automated vs. human market sharing rule for ties, individual vs. collective decision making, and even vs. odd number of locations.

The asymmetry effects in a spatial oligopoly model

This paper generalizes model of the spatial duopoly [Liang,W.J., Hwang, H., Mai, C.C.: Spatial discrimination: Bertrand vs. Cournot with asymmetric demands. Reg. Sci. Urban Econ. 36, 790–802 (2006)] to analyze the effects of asymmetry. The location asymmetry of the firms and the asymmetry of the markets sizes are considered. The competition game consists of two stages. In the first stage, the firms simultaneously select their locations. In the second stage, given the location decisions, the firms simultaneously choose their supplied quantities. The equilibrium of the model is solved by backward induction. It is obtained that at a Nash equilibrium, increasing of firms numbers, markets size asymmetry and potential of markets will be conduce to agglomeration of firms on the large market. The increase in unit transportation costs will be conduce to dispersion of firms.

Equilibrium number of firms and economic welfare in a spatial price discrimination model

Economics Letters, 2006

We examine the relationship between the equilibrium number of the firms entering the market and socially efficient one. investigates a mill pricing model and shows that the former is larger than the latter (excess entry theorem). We find that, in contrast to , the equilibrium number of the firms can be either larger or smaller than the efficient one. If the entry cost is small and the resulting equilibrium number of the firms large, it is excessive from the normative viewpoint. On the contrary, if the entry cost is small and the resulting equilibrium number of the firms is large, it can be insufficient. JEL classification numbers: H42, L13

Spatial price discrimination and the merger paradox

Regional Science and Urban Economics, 2000

A familiar result in the literature on mergers is that the principal beneficiaries from such activity are the firms which are excluded from participation. The possible existence of this 'merger paradox' contrasts strongly with the frequently expressed view that merger is anti-competitive. This paper examines the question within the context of a model of spatial competition in which firms choose their locations in anticipation of forming a merger, and practise price-discrimination. We allow for differences in firms' shares in the benefits of merger, and for the possibility that the firms will attach probabilities to merger formation.

On agglomeration in competitive location models

Annals of Operations Research, 2014

Agglomeration of facilities that compete with each other is common in practice, which suggests the existence of forces driving facilities to locate in clusters. Shopping centers and food courts are everyday examples. Although these agglomeration forces have been adequately analyzed and explained in the economic literature, operational research location models have not taken them into consideration as of today. This is particularly troublesome, as locations prescribed by these models are rather dispersed, which is in blatant disagreement with the examples that can be observed in real life. We present a selective review of the economic literature dealing with agglomeration forces acting in a linear market, classifying these forces into weak and strong. This paper demonstrates the sensitivity of competitive location models with respect to some assumptions that cause agglomeration or dispersion.

Spatial Price Discrimination with Heterogeneous Firms

The Journal of Industrial Economics, 2011

In this paper we aim to explain intuitively heterogeneous firms’ optimal location decisions in a simple spatial market. To do so, we present and solve a four‐stage game of entry, location, pricing and consumption in a spatial price discrimination framework with arbitrarily many heterogeneous firms. We provide a unique equilibrium outcome without imposing restrictions on the distribution of marginal costs across firms.