Abstract
This paper investigates the optimality properties of interdependent spatial markets in a situation of price-location competition. A framework is developed where interdependences on the demand side of the economy are fully accounted for. It is assumed that goods supplied in the economy are not independent in terms of consumption. In addition, consumers can capture economies of scope in travel by shopping for several goods on one trip. Two goods are available in addition to a composite product. The problem involves two non-cooperative firms that exhibit a Nash behavior in selling their single product to a population uniformly distributed around a circumference. The level of interdependence between markets is expressed by the transportation rate, and by two other parameters indicating the relations of complementarity/substitutability among goods. A numerical analysis of comparative statics is conducted to examine the role of these parameters on firms' optimal location and price configurations.
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Thill, JC. Spatial competition and market interdependence. Papers in Regional Science 71, 259–275 (1992). https://doi.org/10.1007/BF01434267
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DOI: https://doi.org/10.1007/BF01434267