Location in a Vertically Differentiated Industry

CORE Discussion Paper No. 2005/71

25 Pages Posted: 8 Feb 2006

See all articles by Emanuele Bacchiega

Emanuele Bacchiega

University of Bologna - Department of Economics

Antonio Minniti

University of Bologna

Date Written: October 2005

Abstract

We analyze a model of a vertically differentiated duopoly with two regions. These two locations differ for the market size or for the distribution of the willingness to pay for quality of their consumers. Firms sequentially choose to settle in one region and then simultaneously compete in prices, selling their products both on the local market and on the foreigner one. We show that the decision whether to agglomerate or not crucially depends on the extent of regions' asymmetries, but, counter-intuitively, there are parametric configurations in which the model predicts that the leader (the first firm choosing location) settles either in the poorer or in the smaller region, leaving the other one to the follower. Welfare analysis completes the paper.

Keywords: Regions, Vertical Differentiation, Oligopoly

JEL Classification: D43, L13, R12

Suggested Citation

Bacchiega, Emanuele and Minniti, Antonio, Location in a Vertically Differentiated Industry (October 2005). CORE Discussion Paper No. 2005/71. Available at SSRN: https://ssrn.com/abstract=881752 or http://dx.doi.org/10.2139/ssrn.881752

Emanuele Bacchiega (Contact Author)

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
40126 Bologna, 40125
Italy
+390512098486 (Phone)
+390512098493 (Fax)

Antonio Minniti

University of Bologna ( email )

Piazza Scaravilli 2
Bologna, 40100
Italy

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