Two Stage Equilibrium and Product Choice with Elastic Demand
نویسندگان
چکیده
This paper examines a two stage model of product choice with elastic demand. The duopolists choose locations in the initial stage and compete in prices in the next stage. The consumers' demand varies inversely with price. The existence of Nash equilibrium prices in the second stage for each pair of locations is proved. The equilibrium locations chosen in the rst stage are unique and symmetric. The equilibrium locations is a function of the ratio of the reservation price and the transportation cost parameter. If this ratio exceeds a certain critical value, then the locations are at the extreme end points of the market. As the ratio decreases, the locations gradually move towards the center. So the degree of product diierentiation is determined by the relative magnitudes of the reservation price and the transportation cost parameter.
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