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THEORY AND EXPERIMENTS ON SPATIAL COMPETITION
Author(s) -
BROWNKRUSE JAMIE,
CRONSHAW MARK B.,
SCHENK DAVID J.
Publication year - 1993
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1993.tb00872.x
Subject(s) - collusion , competition (biology) , economics , microeconomics , set (abstract data type) , mathematical economics , line (geometry) , discounting , econometrics , computer science , mathematics , biology , ecology , geometry , finance , programming language
We present theoretical and experimental results on spatial competition between two firms. Firms choose locations simultaneously along a line representing a linear market. Identical consumers with non‐increasing demand functions are uniformly distributed along this line. We solve for symmetric equilibrium payoffs in an infinitely repeated game for the case of linear demand and an arbitrary discount factor. The set of equilibriums found includes both competitive and collusive payoffs. In laboratory experiments in which the final period was unknown to the players in advance, we observed both competitive and collusive outcomes. Non‐binding communication led to collusion.