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Full or partial market coverage? A note on spatial competition with elastic demand
Author(s) -
Nero Giovanni
Publication year - 1999
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/(sici)1099-1468(199903)20:2<107::aid-mde921>3.0.co;2-c
Subject(s) - economics , reservation , microeconomics , product differentiation , competition (biology) , product (mathematics) , nash equilibrium , price elasticity of demand , mathematical economics , econometrics , mathematics , computer science , cournot competition , ecology , biology , computer network , geometry
In this paper, a spatial model is used to endogenously determine product locations and prices when consumers have an elastic demand with a finite reservation price. I show under which condition a two‐stage Bertrand–Nash equilibrium yields maximal product differentiation with full market covering. Additionally, this paper highlights the effects of a change in the reservation price and in the utility loss rate on the equilibrium values of the model. The ambiguous effect of a change in the utility loss rate on prices constitutes a rather puzzling result. Copyright © 1999 John Wiley & Sons, Ltd.