[PDF] Price And Quality In Spatial Competition eBook

Author : Raphael Auer
Publisher :
Page : 53 pages
File Size : 15,25 MB
Release : 2014
Category : Competition
ISBN :

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We develop a model of vertical innovation in which firms incur a market entry cost and position themselves in the quality space. Once established, firms compete monopolistically, selling to consumers with heterogeneous tastes for quality. We establish existence and uniqueness of the pricing game in such vertically differentiated markets with a potentially large number of active firms. Turning to firms' entry decisions, exogenously growing productivities induce firms to enter the market sequentially at the top end of the quality spectrum. We spell out the conditions under which the entry problem is replicated over time so that each new entrant improves incumbent qualities in fixed proportions. Sequential market entry overcomes the asymmetry of the location problem, which unavoidably arises in the quality spectrum because of its top and bottom ends. Our main technical contribution lies in handling this asymmetry, a feature absent in Salop (1979) and other circular representations of Hotelling (1929) and Lancaster (1966).

Author : Tarek H. Selim
Publisher :
Page : 0 pages
File Size : 43,15 MB
Release : 2020
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ISBN :

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Spatial quality choice is introduced, where consumers are horizontally differentiated by taste and firms vertically differentiated by quality location, within an equilibrium model of duopoly competition characterized by asymmetric fixed and variable costs. Firms choose quality location followed by prices but then may vertically re-locate their quality offerings based on changing horizontal consumer taste. A monopolistic equilibrium solution arises with firms achieving positive economic profits through price-quality markups exceeding marginal costs. Under strict inequality conditions, each firm acts as a monopolistic competitor within a range of quality choices governed by multiple relative differentiation outcomes. On the other hand, vertical re-location exhibits a resistance to change on the part of vertically located firms such that firms dislike quality re-location and prefer stable preferences in quality. Such resistance to change is overcome by firms re-locating their quality offerings to maximize monopolistic brand-space gains. It is argued that more horizontal differentiation may force more product differentiation by vertical quality relocation. A relative change in quality preferences may result in wider quality spreads in the market through vertical quality re-locations, even though the resistance to change arguments may still hold good.

Author : Kurt Richard Brekke
Publisher :
Page : 0 pages
File Size : 12,13 MB
Release : 2008
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In a model of spatial competition, we analyze the equilibrium outcomes in markets where the product price is exogenous. Using an extended version of the Hotelling model, we assume that firms choose their locations and the quality of the product they supply. We derive the optimal price set by a welfarist regulator. If the regulator can commit to a price prior to the choice of locations, the optimal (second-best) price causes overinvestment in quality and an insufficient degree of horizontal differentiation (compared with the first-best solution) if the transportation cost of consumers is sufficiently high. Under partial commitment, where the regulator is not able to commit prior to location choices, the optimal price induces first-best quality, but horizontal differentiation is inefficiently high.

Author : Stefano Colombo
Publisher : Springer Nature
Page : 346 pages
File Size : 48,49 MB
Release : 2020-09-23
Category : Business & Economics
ISBN : 3030400980

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Space is a crucial variable in any economic activity. Spatial Economics is the branch of economics that explicitly aims to incorporate the space dimension in the analysis of economic phenomena. From its beginning in the last century, Spatial Economics has contributed to the understanding of the economy by developing plenty of theoretical models as well as econometric techniques having the “space” as a core dimension of the analysis. This edited volume addresses the complex issue of Spatial Economics from a theoretical point of view. This volume is part of a more complex project including another edited volume (Spatial Economics Volume II: Applications) collecting original papers which address Spatial Economics from an applied perspective.

Author : Daniel P. McMillen
Publisher :
Page : 0 pages
File Size : 23,84 MB
Release : 2006
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Relatively little work has examined whether universities compete directly in either list or net tuition. This paper is the first to examine competition among universities, doing so through the introduction of geographic proximity into a model of tuition determination. We also contribute to the spatial econometric literature by relaxing the constraint in the standard spatial model that the strength of the spatial relationship be common across all observations. Exploiting detailed data for a cross-section of private US universities, the results of standard spatial models applied to tuition setting suggest that both list and net tuition are positively related to the proximity of competitors. Thus, the paper provides the first formal evidence that universities compete directly on price, and that the market for students depends on the proximity of competitors. However, the differential spatial-lag models suggest imposing a common spatial effect across all classes of institutions is overly restrictive insofar as spatial dependence depends on both geographic proximity and institutional quality.

Author : Anna Nagurney
Publisher :
Page : 41 pages
File Size : 32,16 MB
Release : 2016
Category :
ISBN :

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In this paper, a spatial price equilibrium model with information asymmetry in quality is developed. Producers at the supply markets are aware of the quality of their products, whereas consumers, located at the demand markets, are aware only of the average quality of the products that are shipped to their demand markets. We derive the governing equilibrium conditions, along with the variational inequality formulation. We then extend the model to include policy interventions in the form of minimum quality standards and provide an integrated variational inequality formulation of both models. We introduce a dynamic adjustment process for the evolution of the product shipments and quality levels over time and formulate it as a projected dynamical system. We establish qualitative results, in the form of existence, uniqueness, and stability analysis. An algorithm is proposed, along with a convergence proof. The algorithm tracks the evolution of the product shipment and quality level pattern until an equilibrium is achieved and, at each iteration, yields closed form expressions for the computation of the product shipments and quality levels. It is then utilized to compute solutions to a spectrum of spatial price equilibrium numerical examples in order to explore the impacts of information asymmetry under different scenarios.This work adds to the growing research on spatial competition and product quality but is the first to incorporate information asymmetry of this specific form in both equilibrium and dynamic model versions.