Spatial competition with profit-maximising and labour-managed firms

Abstract.

The nature of the equilibria arising under spatial differentiation is investigated here in a duopoly model, where at least one firm maximises value added per worker. The study shows that if firms' objectives differ, there exists a subgame perfect equilibrium in pure strategies, which is possibly characterised by asymmetric locations. If both firms are labour-managed, there exists a (symmetric) subgame perfect equilibrium in pure strategies with firms located at the first and third quartiles, if and only if the setup cost is low enough. Otherwise, undercutting is profitable.