Cournot Retail Chains

In this paper a model of spatial Cournot competition among retail firms is devised and used to assess the effect of a variety of structural factors on retail prices and profits. The model illustrates the spatial chain of interaction that firms must anticipate to reach equilibrium when organized in chains or as independents. It shows the sensitivity of price to the location of stores, the number of stores per location, and transportation cost.     

SPATIAL ENTRY DETERRENCE UNDER OLIGOPOLY*

ABSTRACT. This paper examines colluding, oligopolistic firms in a linear market. By assuming that rivals do not compete for consumers at their market boundaries, it is shown that an equilibrium exists without adopting a convex transportation cost function. Two price profiles are derived. The first describes firm prices in the absence of threatened entry. The second details profit-maximizing prices which forestall entrants. Given infinite relocation costs, threatened entry leads to price adjustments by the incumbent firms.     

SPATIAL PRICING IN INTERDEPENDENT MARHETS*

ABSTRACT. Conditions for spatial price equilibrium are derived for a set of firms in oligopolistic spatial competition, distributed at fixed locations in a heterogeneous region where consumer purchasing patterns are a probabilistic function of the price distribution rather than a deterministic function of proximity to firms. The resulting prices vary with accessibility to consumers or with the degree of local spatial monopoly, and result in non-zero profits for firms. Conditions describing the existence and stability properties of this spatial price equilibrium are defined, and are shown to be equivalent for two different hypotheses concerning disequilibrium pricing behavior: a partial price adjustment model and a Bertrand game. For two different profit goals, total profit maximization and profit rate maximization, it is shown that a spatial price equilibrium exists and is at least locally quasi-stable.     

Duopoly prices under congested access*

Abstract. Consider two firms, at different locations, supplying a homogenous good at constant marginal production cost. Consumers incur travel costs to the firm for each unit purchased, and the travel costs increase with the amount of travel to each firm (congestion). When all traffic and all congestion are generated by travel to a duopolist, both the Nash–Bertrand equilibrium prices and the Nash–Cournot equilibrium prices exceed the sum of the marginal production cost and the marginal external travel cost. However, when the road is shared by travelers to the duopolists' facilities and travelers in competitive markets, the Nash–Bertrand duopoly price equals the competitive price and the Nash–Cournot price contains a markup.     

RURAL RETAIL BUSINESS THRESHOLDS AND INTERDEPENDENCIES*

ABSTRACT. The occurrence of rural retail activity may be related to the concept of threshold, which suggests the direct relationship between surrounding populations and the hierarchical functions provided. Empirid studies have typically examined individual categories of retail firm concentration or multiplication in isolation of the extent of other retail activities. This study develops models of retail business concentration for sparsely populated rural markets, and emphasizes proper statistical treatment of the discrete firm-count data. The analytical approach specifies systems of multivariate count data models that can capture the interdependencies among merent types of retail firms. The degree of interdependence is tested and shown to be a significant statistical feature of the model of rural retail firm counts.     

Price Variation in Spatial Oligopolies

The “geography of price” is being given renewed attention by geographers and economists. This paper examines spatial price variation in both unbounded (circular) and bounded (linear) one-dimensional markets. Firms compete for consumers in the short run by adjusting price until the Bertrand equilibrium is reached in the market. While firms act as spatial oligopolists in specific market segments, the profit-maximizing price of any given firm depends directly and indirectly upon the spatial-economic properties (locations, marginal costs) of all other firms in the market.     

Hotelling Games with Three,Four, and More Players*

Abstract. This paper extends the interval Hotelling model with quadratic transport costs to the n‐player case. For a large set of locations including potential equilibrium configurations, we show for n > 2 that firms neither maximize differentiation—as in the duopoly model—nor minimize differentiation—as in the multi‐firm game with linear transport cost. Subgame perfect equilibria for games with up to nine players are characterized by a U‐shaped price structure and interior corner firm locations. Results are driven by an asymmetry between firms. Interior firms are weaker competitors than their rivals at the corners. Increasing the number of firms shifts even more power to the corner firms. As a result, there is too much differentiation from the social perspective if n ≤ 3, while adding firms leads to a level of differentiation in equilibrium below the social optimum.     

Competitive Location and Pricing on Networks

In this paper we consider a location and pricing model for a retail firm that wants to enter a spatial market tvhere a competitor firm is already operating as a monopoly with several outlets. The entering firm seeks to determine the optimal uniform mill price and its servers' locations that maximize profits given the reaction in price of the competitor firm to its entrance. A tabu search procedure is presented to solve the model together with computational experience and an example.     

Competitive Location and Pricing on Networks

In this paper we consider a location and pricing model for a retail firm that wants to enter a spatial market where a competitor firm is already operating as a monopoly with several outlets. The entering firm seeks to determine the optimal uniform mill price and its servers' locations that maximize profits given the reaction in price of the competitor firm to its entrance. A tabu search procedure is presented to solve the model together with computational experience and an example.     

PRICE UNCERTAINTY AND PRODUCTION-LOCATION DECISIONS UNDER FREE ENTRY OLIGOPOLY*

ABSTRACT. This paper departs from earlier work on location theory under uncertainty by considering an oligopoly case where the symmetric Cournot-Nash equilibrium of imperfectly competitive and identical firms are examined. It will be shown that once a Cournot competitive equilibrium is introduced, the demand function plays a central role in the choice of location, and the effects of changes in fixed costs, mean product price and price variability on the firm's optimum location and output are independent of absolute and/or relative risk aversion. These striking results are in sharp contrast with the well-known results obtained in previous contributions to the location literature.     

Marketing as Diffusion in a Single Population

The paper examines the optimal advertising policy for a profit-maximizing firm in a single market area. The results are first derived for a spaceless market, indicating the steady-state equilibrium advertising policy and market size. The model is then extended to account for the costs of overcoming distance. It is shown that there is an outward limit to marketing, and that this distance is dependent on the market price and retirement rate of the good and the interest rate. The minimal price necessary for covering any given distance is derived, along with the minimal advertising effort necessary to reach the steady-state market size. It is shown that the steady-state market size, advertising policy, and switching time are all monotonic functions of distance.     

HOTELLING'S “MAIN STREET” WITH MORE THAN TWO COMPETITORS*

ABSTRACT. I analyze oligopolistic competition among three or more firms located on Hotelling's (1929) Main Street and show that in contrast with Hotelling's duopoly, the symmetric locational structure supports a noncooperative equilibrium in prices. However, in a two-stage game of location choice in the first stage, and price choice in the second stage, there exists no subgame-perfect equilibrium where the whole market is served. This is because, starting from any locational pattern, firms have incentives to move toward the central firm. This strong version of the Principle of Minimum Differentiation destroys the possibility of a locational equilibrium. The results are a direct consequence of the existence of boundaries in the space of location. The sharp difference between these results and those of the standard circular model (whose product space lacks boundaries) shows that the general use of the circular model as an approximation to the line interval model may be unwarranted.     

PRODUCT DIFFERENTIATION,PRICING POLICY AND EQUILIBRIUM*

ABSTRACT. This paper studies the price-location equilibrium of duopolists supplying differentiated goods and competing in a spatial market with elastic demand. We show that a price-location equilibrium exists under all three pricing policies traditionally considered by the literature: f.o.b. mill, uniform delivered, and spatially discriminatory pricing. We also show that firms always cluster at the market center. The second part of the paper studies the endogenous choice of pricing policy. A surprising feature of the resulting equilibrium is asymmetry. The greater the extent to which the goods are substitutes, the more likely is it that one firm will choose f.o.b. pricing and the other price discrimination. Finally, the welfare consequences of the analysis show some interesting trade-offs.     

MILL PRICING AND SPATIAL PRICE DISCRIMINATION MONOPOLY PERFORMANCE AND LOCATION WITH SPATIAL RETAIL MARKETS*

ABSTRACT. Most of the monopoly spatial price discrimination literature explicitly assumes uniform population density over space. It also implicitly assumes that firms (plants) are spatially isolated from each other with production and retail points that coincide in location. While departures from these assumptions have been explored separately in the literature, it remains to examine performance and location when these assumptions are relaxed simultaneously. What emerges in this paper is a model where density functions approximate a pair of cities isolated from other cities. Each city has its own retail market, while the location of a single production or wholesale point is determined by characteristics of the two markets. Comparisons of mill pricing and spatial price discrimination found in the spatial monopoly literature can be interpreted as special cases of the more general framework provided here.     

Foreign-owned Firms' Campaign Contributions in the United States: An Exploratory Study

This study extends previous empirical work on corporate political activity by examining which foreign-owned firms provide campaign contributions to United States legislators. While numerous studies have examined which domestic firms make campaign contributions, little is known about the propensity of foreign-owned firms to make contributions. Using logit and Tobit analyses, the findings suggest that firm size, legislative issues, foreign ownership, and cultural characteristics are important determinants of a foreign-owned firm's political strategy. The findings also suggest that there are strong parallels between the political strategies of foreign-owned firms and domestic firms.     

THE EFFECTS OF ZONING IN SPATIAL COMPETITION

ABSTRACT This paper considers a location model to illustrate the effect of zoning on competition. A planner is in charge of designing a city in a circular space where firms and consumers are located on different sides. With this type of market configuration, equilibrium in location under concave transport costs is proved. Then, a welfare function with different weights attached to consumer and firm surpluses is introduced to highlight zoning regulation as an influential competition policy tool. Depending on the regulator's political profiles and the demand, it is shown that zoning can lead to strong, weak, or moderate competition.     

Uniform Pricing Versus Mill Pricing

This paper analyzes the coexistence of different pricing strategies. The purpose is to discuss how firms that are limited to uniform pricing affect the outcome of price competition among mill–price–setting firms. Price competition among (three) firms that are restricted to mill pricing is analyzed within the classic Hotelling framework and uniform–price–setting firms are considered as first movers. If uniform–price–setting firms deliver any good, they effectively separate mill–price–setting firms from each other. Finally, it is shown that price competition among first movers strengthens the effects of cross–type price competition.     

OPENNESS TO TRADE AND INDUSTRY COST DISPERSION: EVIDENCE FROM A PANEL OF ITALIAN FIRMS*

ABSTRACT We use Italian firm‐level data to investigate the impact of trade openness on the distribution of firms across marginal cost levels. In so doing, we implement a procedure that allows us to control not only for the standard transmission bias identified in firm‐level TFP regressions but also for the omitted price bias due to imperfect competition. We find that more open industries are characterized by a smaller dispersion of costs across active firms. Moreover, in those industries the average cost is also smaller.     

Market Rules and Spatial Outcomes: Insights from the Corporate Restructuring of U.S. Food Retailing

In this paper a study of the corporate restructuring of the U.S. food retail industry, during and following the period of regulatory relaxation and high-leverage capital transformations of the 1980s, is used to interrogate the complex relationships between market regulation, investment regimes, corporate strategies, and spatial outcomes. It is shown that changes in the “rules” governing investment and competition in the United States in the 1980s triggered countervailing spatial processes in the food retail industry. Those processes took more than a decade to work themselves through, but by the late 1990s a radically altered corporate landscape was beginning to emerge. In particular, consolidation of the industry had finally gained momentum–creating an industry whose leading firms are likely by 2002 to have a market share double the level of the early 1990s. The paper concludes by considering the insights which a consideration of corporate restructuring and regulation in this U.S. industry offers for some important areas of conceptual debate in economic geography. In particular, it is argued that industries in which capital structure transformations of the firm must be confronted and treated as a central issue have an intrinsic, but until recently neglected, importance in theoretical debate in the discipline.     

Transport Costs and Rural Development

Innovations that reduce costs of transport from rural locations may also reduce transport costs to rural areas. As transport costs fall, producers can afford to concentrate and achieve economies of scale. This paper explains an initially negative, but ultimately positive, relationship between reductions in transport costs and rural development. A two-region general equilibrium model with firm and worker spatial mobility highlights the firm and household location implications of costly transport-service use by both industry and agriculture in the context of scale economies and product differentiation. The computable general equilibrium model is initialized and verified with a bi-regional social accounting matrix and then used for simulations. Changes in relative transport costs are shown to affect relative regional wage rates, thus also determining the location of "production-cost-oriented" firms.