Resource title

Transport Cost Sharing and Spatial Competition

Resource image

image for OpenScout resource :: Transport Cost Sharing and Spatial Competition

Resource description

We consider a linear city model where both firms and consumers have to incur transport costs. Following a standard Hotelling (1929) type framework we analyze a duopoly where firms facing a continuum of consumers choose locations and prices, with the transportation rate being linear in distance. From a theoretical point of view such a model is interesting since mill pricing and uniform delivery pricing arise as special cases. Given the complex nature of the profit function for the two-stage transport cost sharing game, we invoke simplifying assumptions and solve for two different games. We provide a complete characterization for the equilibrium of the location game between the duopolists by removing the price choice from the strategy space. We then find that if the two firms are constrained to locate at the same spot, the resulting price competition leads to a mixed strategy equilibrium with discriminatory rationing. In equilibrium both firms always have positive expected profits. Finally, we derive a pure strategy equilibrium for the two-stage game. Results are then compared with the mill pricing and uniform delivery pricing models.

Resource author

Hrachya Kyureghian, Sudipta Sarangi

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/18102

Resource license

Adapt according to the presented license agreement and reference the original author.