Spatial Competition with Interacting Agents
16 Pages Posted: 2 Dec 2015 Last revised: 24 Feb 2017
Date Written: February 23, 2017
We generalize Hotelling’s model of spatial competition with more than two firms in a two-dimensional space. Firms choose both price and location to maximize profits. The principle of minimum differentiation does not hold in general. Local duopolies emerge from the interaction between firms. Firms do not spread uniformly across the two-dimensional space, nor do they all charge the same price. Firms in more competitive locations charge lower prices. More product attributes produce more price competition.
Keywords: Hotelling, Spatial Competition, Spatial Distribution, Price, Quality, Dimension, Principle of Minimum Differentiation, Duopoly, Monopolistic Competition, Agglomeration, Product Differentiation, Urban Economy, Distributed Systems
JEL Classification: D21, D43, D83, L13, R12
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