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SPATIAL EQUILIBRIUM WITH FOOTLOOSE FIRMS *
Author(s) -
Anderson Simon P.,
Palma André de
Publication year - 1992
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/j.1467-9787.1992.tb00188.x
Subject(s) - duopoly , homogeneous , product (mathematics) , mathematical economics , product differentiation , solution concept , economics , sequential equilibrium , nash equilibrium , logit , equilibrium selection , econometrics , game theory , computer science , repeated game , mathematics , cournot competition , geometry , combinatorics
. We determine the location equilibria in a duopoly model under a novel solution concept. Typically, spatial equilibrium is described as either a simultaneous price and location game, or else as a two‐stage location‐then‐price game. We introduce a new alternative, a two‐stage price‐then‐location game. It is well known that no (pure strategy) equilibrium usually exists under the two standard solution concepts when products are homogeneous. We show this is also true for the new concept. We then provide numerical results for a specific functional form (the logit model) which introduces product heterogeneity into the standard framework, restoring equilibrium when the degree of substitutability between products is not too small.