Chamberlin’s Solution in a Spatial Market

The Quarterly Journal of Austrian Economics, 2005

2011

Hotelling's (1929) principle of minimum differentiation and the alternative prediction that firms will maximally differentiate from their rivals in order to relax price competition have not been explicitly tested so far. We report results from experimental spatial duopolies designed to address this issue. The levels of product differentiation observed are systematically lower than predicted in equilibrium under risk neutrality and compatible with risk aversion. The observed prices are consistent with collusion attempts. Our main findings are robust to variations in three experimental conditions: automated vs. human market sharing rule for ties, individual vs. collective decision making, and even vs. odd number of locations.

The Quarterly Review of Economics and Finance, 2005

This paper offers some preliminary steps in the marriage of some of the theoretical foundations of the new economic geography with spatial computable general equilibrium models. Modeling the spatial economy of Brazil using the usual assumptions of CGE models makes little sense when one state, São Paulo, accounts for 40% of GDP and where transportation costs are high and accessibility low compared to European or North American standards. Hence, handling market imperfections becomes imperative as does the need to address internal spatial issues from the perspective of Brazil's increasing involvement with external markets such as MERCOSUL, EU, NAFTA. The paper builds on the B-MARIA-27, a multiregional CGE model of the Brazilian economy; non-constant returns and non-iceberg transportation costs are introduced and some simulation exercises carried out. The results, limited in this paper to short-run considerations, confirm the asymmetric impacts that transportation investment has on a spatial economy in which one state (São Paulo) is able to more fully exploit scale economies vis a vis the rest of Brazil. The analysis also reveals the importance of parameter estimation in handling imperfectly competitive markets.

Review of Regional Studies, 1979

typically uses concentration ratios in antitrust litigations to demonstrate the degree of monopoly power as well as the anti competitive impact of mergers.' However, the empirical evidence of the link between concentration and competitive performance (i.e., price levels) as well as between concentration and profits, generally shows only a weak relation ship, if any at all.^ Furthermore, the theoretical foundations of the assumed causal relationship going from concentration of ownership to market power and profits has been challenged."' The typical argument has been that this causal relationship runs from concentration to higher price to profits, generally as a consequence of collusion. An alternative argument stressed by Demsetz [14] and Peltzman [22], is that causality runs from concentration to average cost to profits, as a result of improved production efficiency. The pur pose of the following presentation is to add another voice to those challenging regulators' (and a large number of economists') reliance on the assumption of a concentration to a higher collusive price to market power causal relation ship. We do so by examining certain implications of spatial price theory.'' In particular we shall see that: 1) entry and reduced concentration may lead to higher prices (prices and concentration can be inversely related), 2) the type of spatial competition which involves the largest number of firms in a spatially competitive equilibrium (and therefore the lowest level of concentration), also involves the highest prices, and 3) a merger of spatially separated firms in the same spatially competitive geographic market need not result in higher prices since the spatially competitive price maximizes total profits. Profits cannot rise through collusive price increases.' Thus, the typical argument of con centration to price to profit relationship does not hold in cases where both firms and consumers are spatially dispersed and distance is costly. THE IMPACT OF ENTRY ON A SPATIAL MONOPOLIST'S PRICE Assume we have a single firm located at point A in Figure 1. This firm is selling a product to spatially dispersed consumers located along the line AB. Consumers must pay the firm's price (mill price) plus delivery costs to their location. Thus, the relevant demand to the spatial monopolist is the aggrega

Geographical Analysis, 2010

This paper investigates the properties of two types of cost restrictions that guarantee the existence of an equilibrium in pure strategies in Bayesian spatial competition models with heterogenous firms.

Dans cet article, nous considérons uneéconomie spatiale de propriété privée. Nous pouvons distinguer deux différences essentielles entre notre modèle et le modèle classique d'Arrow-Debreu. Tout d'abord, chaque consommateur doit choisrà l'équilibre un unique endroit où consommer. La deuxième différence concerne les dotations initiales qui dépendent du choix de résidence du consommateur, de manièreà prendre en compte principalement la dotation en travail. Nous démontrons alors l'existence d'unéquilibre général.

Annals of Regional Science, 1991

Regional Science and Urban Economics, 2010

We study the relationship between competition and quality within a spatial competition framework where firms compete in prices and quality. We generalise existing literature on spatial price–quality competition along several dimensions, including utility functions that are non-linear in income and cost functions that are non-separable in output and quality. Our main message is that the scope for a positive relationship between competition and quality is underestimated in the existing literature. If we allow for income effects by assuming that ...

2011

This critical review focuses on the development of spatial competition models in which the location choice by firms plays a major role. Theref o , after a brief review of the roots of spatial competition modeling, this paper intends to offer a critical analysis over its recent developments. The starting point is the recognition of the increased importance of this topic through the quantification of the research in this field by using some bibliometric tools. After that, this study proceeds by identifying the main r esearch paths within spatial competition modeling. Specifically, the type of strategy (Bertr and vs. Cournot competition) and its implications over location equilibria are discussed . A ditionally, it is presented a comparison of the effects on the location equilibria of the mo st typical assumptions in literature, that respect to the market (linear vs. circular), produc tion costs, transportation costs, as well as the number of firms. Finally, the type of information ( c...

Cutting Edge Conference, RICS, …, 1998

T h e n a t u r e a n d s t r u c t u r e o f s p a t i a l i n d u s t r i a l p r o p e r t y m a r k e t s N e i l D u n s e , U n i v e r s i t y o f A b e r d e e n , C o l i n J o n e s , H e r i o t -W a t t U n i v e r s i t y, a n d D a v i d M a r t i n a n d W i l l Fr a s e r, P a i s l e y U n i v e r s i t y I S B N 0 -8 5 4 0 6 -9 46-1

Regional Science and Urban Economics, 2008

This paper establishes the existence and efficiency of equilibrium in a local public goods economy with spatial structures by formalizing Hamilton's (1975 Urban Studies) elaboration of Tiebout's (1956 JPE) tale. We use a well-known equilibrium concept from Rothschild and Stiglitz (1976, QJE) in a market with asymmetric information, and show that Hamilton's zoning policy plays an essential role in proving the existence and efficiency of equilibrium. We use an idealized large economy following Ellickson, Grodal, Scotchmer and Zame (1999, Econometrica) and Allouch, Conley and Wooders (2004). Our theorem is directly applicable to the existence and efficiency of a discrete spatial approximation of mono-or multi-centric city equilibria in an urban economy with commuting time costs, even if we allow the existence of multiple qualities of (collective) residences, when externalities due to traffic congestion are not present.

Economics Letters, 2010

This paper investigates the properties of two types of cost restrictions that guarantee the existence of an equilibrium in pure strategies in Bayesian spatial competition models with heterogenous firms.

2009