Geographical separation of oligopolists can be very competitive |
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Authors: | Paul Madden |
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Institution: | School of Economic Studies, Manchester University, Manchester M13 9PL, UK |
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Abstract: | A given number of single, differentiated product oligopolists locate in one of two separate market-places, which consumers access at a cost. Firms set prices and the CES consumers choose purchases at one or both market-places. Firm agglomeration in one market-place produces positive profits because of product differentiation. But if consumer access costs are homogeneous and products are sufficiently good substitutes, geographical separation of firms produces prices analogous to homogeneous product Bertrand, and is “very competitive”, the reverse of textbook Hotelling. Hence a novel explanation emerges for the geographical agglomeration of firms producing very similar products. |
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Keywords: | D43 L13 R3 |
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