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HOTELLING'S BEACH WITH LINEAR AND QUADRATIC TRANSPORTATION COSTS: EXISTENCE OF PURE STRATEGY EQUILIBRIA *
Author(s) -
EGLI ALAIN
Publication year - 2007
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/j.1467-8454.2007.00304.x
Subject(s) - product differentiation , subgame perfect equilibrium , quadratic equation , mathematical economics , function (biology) , product (mathematics) , type (biology) , mathematics , economics , mathematical optimization , microeconomics , game theory , geometry , ecology , evolutionary biology , cournot competition , biology
In Hotelling type models consumers have the same transportation cost function. We deviate from this assumption and introduce two consumer types. Some consumers have linear transportation costs, while the others have quadratic transportation costs. If at most half the consumers have linear transportation costs, a subgame perfect equilibrium in pure strategies exists for all symmetric locations. Furthermore, no general principle of differentiation holds. With two consumer types, the equilibrium pattern ranges from maximum to intermediate differentiation. The degree of product differentiation depends on the fraction of consumer types.