Price-dependent demand in spatial models

Yiquan Gu, Tobias Wenzel

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)

Abstract

This paper introduces price-dependent individual demand into the circular city model of product differentiation. We show that for any finite number of firms, an unique symmetric price equilibrium exists provided that demand functions are not "too" convex. As in the case of unit demand, the number of firms under free entry decreases in the fixed cost of entry while increases in the transportation cost of consumers. However, this number is no longer always in excess of the socially optimal level. Insufficient entry occurs when the fixed and transportation costs are high.

Original languageEnglish
Article number6
JournalB.E. Journal of Economic Analysis and Policy
Volume12
Issue number1
DOIs
Publication statusPublished - 2012

Keywords

  • Excess entry theorem
  • Horizontal product differentiation
  • Price-dependent demand
  • Spatial models

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)
  • Economics and Econometrics

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