Asymmetric Payoffs and Spatial Competition

We investigate the location choice of two firms whose objectives are the weighted average of their own profit and social welfare, in which they simultaneously decide their locations before setting their prices. The purpose of this paper is to examine whether the asymmetric locations are influenced by the asymmetry of the firms’ objectives or by the asymmetry of firms’ marginal costs. We show that, when both firms have the same marginal cost, the equilibrium locations are always symmetric even in the case of the asymmetric objectives. On the other hand, the cost differences lead the asymmetric locations in equilibrium. That is, the asymmetric locations are a result of the cost asymmetry, but not the asymmetry of the firms’ objectives. We also demonstrate that the pursuit of profit by the cost-inefficient firm may increase consumer surplus.