Premium
SPATIAL ASYMMETRIC DUOPOLY WITH AN APPLICATION TO BRUSSELS' AIRPORTS *
Author(s) -
Dunkerley Fay,
De Palma Andre,
Proost Stef
Publication year - 2009
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.1467-9787.2009.00608.x
Subject(s) - duopoly , stylized fact , comparative statics , microeconomics , product differentiation , economics , subsidy , profit (economics) , nash equilibrium , congestion pricing , wage , industrial organization , traffic congestion , market economy , macroeconomics , transport engineering , cournot competition , engineering
In this paper, the problem of a city with access to two firms or facilities (shopping malls, airports, commercial districts) selling a differentiated product (shopping, flights) and/or offering a differentiated workplace is studied. Transport connections to one facility are congested. A model is presented for this asymmetric duopoly game that can be solved for a Nash equilibrium in prices and wages. A comparative statics analysis is used to illustrate the properties of the equilibrium. A numerical model is then applied to the two Brussels airports. Three stylized policies are implemented to address the congestion problem: expansion of transport capacity, congestion pricing, and a direct subsidy to the uncongested facility. Our results indicate that the degree of intrinsic differentiation between the two firms is crucial in determining the difference in profit and market share. Price and wage differences also depend on trip frequency and consumer preferences for diversity. Congestion pricing is the most effective policy tool but all three options are shown to have attractive attributes.