Strategic Accessibility Competition
Posted: 27 Feb 2010
Date Written: February 26, 2010
We analyze the effect of competition in market-accessibility enhancement among quality-differentiated firms. Firms are located in regions with different ex-ante transport costs to reach the final market. We characterize the equilibrium of the two-stage game in which firms first invest to improve market accessibility and then compete in prices. Efforts in accessibility improvement crucially depend on the interplay between the willingness to pay for the quality premium of the median consumer and the ex-ante difference in accessibility between regions. From the social standpoint, all the accessibility investment should be carried out by the high-quality firm. Finally quality choice is endogenized.
Keywords: Accessibility Investment, Vertical Differentiation, Transport Costs
JEL Classification: L13, R42, L90
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