Socially-Optimal Locations for Symmetric and Asymmetric Distributions in the Hotelling Duopoly Model

26 Pages Posted: 25 May 2010

See all articles by Kieron Meagher

Kieron Meagher

Australian National University (ANU) - School of Economics

Ernie G. S. Teo

NUS Business School

Taojun Xie

National University of Singapore (NUS) - Asia Competitiveness Institute

Date Written: May 25, 2010

Abstract

Theoretical models of spatial competition usually assume an uniform consumer distribution. In the real world, firms frequently compete for consumers who are not uniformly located. The equilibrium duopoly locations of several types of commonly used distributions were discussed in Meagher, Teo and Wang (2008). Using the same set of symmetric and asymmetric distributions and specifications from Anderson, Goeree and Ramer (1997), this paper extends Meagher, Teo and Wang (2008) by examining the social-optimum locations. We derive a formula for the social-optimum duopoly locations as one mean-deviation away from the median in the symmetric case. While regulating firm locations are sufficient to optimize welfare for symmetric distributions, additional price regulation is required to ensure social optimality for asymmetric distributions. We also calculate welfare improvements arising from regulation of firm location and show how these vary with the distribution of consumers. The results are significant for urban policy over firm/store locations.

Keywords: Consumer distribution, Duopoly Location Model, Social Optimal, Asymmetric distribution

JEL Classification: C1, D6, L1, L9, R3

Suggested Citation

Meagher, Kieron and Teo, Ernie G. S. and Xie, Taojun, Socially-Optimal Locations for Symmetric and Asymmetric Distributions in the Hotelling Duopoly Model (May 25, 2010). Available at SSRN: https://ssrn.com/abstract=1615884 or http://dx.doi.org/10.2139/ssrn.1615884

Kieron Meagher

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

Coombs Building 9
Canberra, Australian Capital Territory 0200
Australia

Ernie G. S. Teo (Contact Author)

NUS Business School ( email )

15 Kent Ridge Drive
119245
Singapore

Taojun Xie

National University of Singapore (NUS) - Asia Competitiveness Institute ( email )

469C Bukit Timah Road
Level 3, Wing A
259772
Singapore

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