Uncertainty in Spatial Duopoly with Possibly Asymmetric Distributions: A State Space Approach

15 Pages Posted: 4 Apr 2008

See all articles by Kieron Meagher

Kieron Meagher

Australian National University (ANU) - School of Economics

Klaus G. Zauner

City University London - Department of Economics

Date Written: April 3, 2008

Abstract

In spatial competition ïB01rms are likely to be uncertain about consumer locations when launching products either because of shifting demographics or of asymmetric information about preferences. Realistically distributions of consumer locations should be allowed to vary over states and need not be uniform. However, the existing literature models location uncertainty as an additive shock to a uniform consumer distribution. The additive shock restricts uncertainty to the mean of the consumers locations. We generalize this approach to a state space model in which a vector of parameters gives rise to different distributions of consumer tastes in different states, allowing other moments (besides the mean) of the consumer distribution to be uncertain. We illustrate our model with an asymmetric consumer distribution and obtain a unique subgame perfect equilibrium with an explicit, closed-form solution. An equilibrium existence result is then given for the general case. For symmetric distributions, the unique subgame perfect equilibrium in the general case can be described by a simple closed-form solution.

Keywords: Location, Product DiïB00erentiation, Uncertainty, Hotelling

JEL Classification: C72, D43, D81, L10, L13, R30, R39

Suggested Citation

Meagher, Kieron and Zauner, Klaus G., Uncertainty in Spatial Duopoly with Possibly Asymmetric Distributions: A State Space Approach (April 3, 2008). Available at SSRN: https://ssrn.com/abstract=1116122 or http://dx.doi.org/10.2139/ssrn.1116122

Kieron Meagher (Contact Author)

Australian National University (ANU) - School of Economics ( email )

Coombs Building 9
Canberra, Australian Capital Territory 0200
Australia

Klaus G. Zauner

City University London - Department of Economics ( email )

Northampton Square
London, EC1V 0HB
United Kingdom
+44 (0) 20 7040 4510 (Phone)
+44 (0) 20 7040 8580 (Fax)

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