In this paper we study a model where two spatially scattered sellers face a population of consumers dispersed over a given geographical area; they have to incur a transaction cost to place their purchase order. Moreover these consumers have imperfect knowledge of prices, but obtain full information about prices at the first shop they solicit. We study price competition between these firms. The main outcomes of our analysis are as follows. First we show that whenever a price equilibrium exists for given locations of firms, it will necessarily display price dispersion. Second we study location configurations which ensure the existence of a price equilibrium. Furthermore we show that when it exists, a price equilibrium is unique. Finally we analyze firms revenues when merchants anticipate the consequences of their locational choice on subsequent price competition. Then we find that there is an incentive for a firm to get as close as possible to its competitor.

Price search and spatial competition / P. Garella, J.J. Gabszewicz. - In: EUROPEAN ECONOMIC REVIEW. - ISSN 0014-2921. - 31:4(1987), pp. 827-842.

Price search and spatial competition

P. Garella
Primo
;
1987

Abstract

In this paper we study a model where two spatially scattered sellers face a population of consumers dispersed over a given geographical area; they have to incur a transaction cost to place their purchase order. Moreover these consumers have imperfect knowledge of prices, but obtain full information about prices at the first shop they solicit. We study price competition between these firms. The main outcomes of our analysis are as follows. First we show that whenever a price equilibrium exists for given locations of firms, it will necessarily display price dispersion. Second we study location configurations which ensure the existence of a price equilibrium. Furthermore we show that when it exists, a price equilibrium is unique. Finally we analyze firms revenues when merchants anticipate the consequences of their locational choice on subsequent price competition. Then we find that there is an incentive for a firm to get as close as possible to its competitor.
Settore SECS-P/01 - Economia Politica
http://www.sciencedirect.com/science/article/B6V64-45JK4MV-B/2/b65c9e6e2dd975e6339ffd0fc6e64b2a
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2434/179745
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