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Spatial Competition In A Differentiated Market With Asymmetric Costs
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Book Synopsis Spatial Competition in a Differentiated Market with Asymmetric Costs by : Tarek H. Selim
Download or read book Spatial Competition in a Differentiated Market with Asymmetric Costs written by Tarek H. Selim and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Spatial quality choice is introduced, where consumers are horizontally differentiated by taste and firms vertically differentiated by quality location, within an equilibrium model of duopoly competition characterized by asymmetric fixed and variable costs. Firms choose quality location followed by prices but then may vertically re-locate their quality offerings based on changing horizontal consumer taste. A monopolistic equilibrium solution arises with firms achieving positive economic profits through price-quality markups exceeding marginal costs. Under strict inequality conditions, each firm acts as a monopolistic competitor within a range of quality choices governed by multiple relative differentiation outcomes. On the other hand, vertical re-location exhibits a resistance to change on the part of vertically located firms such that firms dislike quality re-location and prefer stable preferences in quality. Such resistance to change is overcome by firms re-locating their quality offerings to maximize monopolistic brand-space gains. It is argued that more horizontal differentiation may force more product differentiation by vertical quality relocation. A relative change in quality preferences may result in wider quality spreads in the market through vertical quality re-locations, even though the resistance to change arguments may still hold good.
Book Synopsis Spatial Competition in Quality by : Raphael Auer
Download or read book Spatial Competition in Quality written by Raphael Auer and published by . This book was released on 2014 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a model of vertical innovation in which firms incur a market entry cost and position themselves in the quality space. Once established, firms compete monopolistically, selling to consumers with heterogeneous tastes for quality. We establish existence and uniqueness of the pricing game in such vertically differentiated markets with a potentially large number of active firms. Turning to firms' entry decisions, exogenously growing productivities induce firms to enter the market sequentially at the top end of the quality spectrum. We spell out the conditions under which the entry problem is replicated over time so that each new entrant improves incumbent qualities in fixed proportions. Sequential market entry overcomes the asymmetry of the location problem, which unavoidably arises in the quality spectrum because of its top and bottom ends. Our main technical contribution lies in handling this asymmetry, a feature absent in Salop (1979) and other circular representations of Hotelling (1929) and Lancaster (1966).
Book Synopsis Preemptive Entry in Differentiated Product Markets by : Simon P. Anderson
Download or read book Preemptive Entry in Differentiated Product Markets written by Simon P. Anderson and published by . This book was released on 2000 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Models of spatial competition are typically static, and exhibit multiple free-entry equilibria. Incumbent firms can earn rents in equilibrium because any potential entrant expects a significantly lower market share (since it must fit into a niche between incumbent firms) along with fiercer price competition. Previous research has usually concentrated on the zero-profit equilibrium, at which there is normally excessive entry, and so an entry tax would improve the allocation of resources. At the other extreme, the equilibrium with the greatest rent per firm normally entails insufficient entry, so an entry subsidy should be prescribed. A model of sequential firm entry (with an exogenous order of moves) resolves the multiplicity problem but raises a new difficulty: firms that enter earlier can expect higher spatial rents, and so firms prefer to be earlier in the entry order. This tension disappears when firms can compete for entry positions. We therefore suppose that firms can commit capital early to the market in order to lay claim to a particular location. This temporal competition dissipates spatial rents in equilibrium and justifies the sequential move structure. However, the policy implications are quite different once time is introduced. An atemporal analysis of the sequential entry process would prescribe an entry subsidy, but once proper account is taken of the entry dynamics, a tax may be preferable.
Book Synopsis Spatial Competition and Equilibrium in a Circular Market by : Andreas Kopp
Download or read book Spatial Competition and Equilibrium in a Circular Market written by Andreas Kopp and published by . This book was released on 1993 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Price-response Asymmetry and Spatial Differentiation in Local Retail Gasoline Markets by : Jeremy A. Verlinda
Download or read book Price-response Asymmetry and Spatial Differentiation in Local Retail Gasoline Markets written by Jeremy A. Verlinda and published by . This book was released on 2007 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Market Definition with Differentiated Products by :
Download or read book Market Definition with Differentiated Products written by and published by . This book was released on 2009 with total page 258 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Asymmetric Information and the Market Structure of the Banking Industry by : Mr.Giovanni Dell'Ariccia
Download or read book Asymmetric Information and the Market Structure of the Banking Industry written by Mr.Giovanni Dell'Ariccia and published by International Monetary Fund. This book was released on 1998-06-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper analyzes the effects of informational asymmetries on the market structure of the banking industry in a multi-period model of spatial competition. All lenders face uncertainty with regard to borrowers’ creditworthiness, but, in the process of lending, incumbent banks gather proprietary information about their clients, acquiring an advantage over potential entrants. These informational asymmetries are an important determinant of the industry structure and may represent a barrier to entry for new banks. The paper shows that, in contrast with traditional models of horizontal differentiation, the steady-state equilibrium is characterized by a finite number of banks even in the absence of fixed costs.
Book Synopsis Geographic- and Product-Market Definition in a Model of Spatial Competition with Differentiated Products by : Javier Elizalde
Download or read book Geographic- and Product-Market Definition in a Model of Spatial Competition with Differentiated Products written by Javier Elizalde and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Spatial Competition written by and published by . This book was released on with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Spatial Price Equilibrium with Information Asymmetry in Quality and Minimum Quality Standards by : Anna Nagurney
Download or read book Spatial Price Equilibrium with Information Asymmetry in Quality and Minimum Quality Standards written by Anna Nagurney and published by . This book was released on 2016 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, a spatial price equilibrium model with information asymmetry in quality is developed. Producers at the supply markets are aware of the quality of their products, whereas consumers, located at the demand markets, are aware only of the average quality of the products that are shipped to their demand markets. We derive the governing equilibrium conditions, along with the variational inequality formulation. We then extend the model to include policy interventions in the form of minimum quality standards and provide an integrated variational inequality formulation of both models. We introduce a dynamic adjustment process for the evolution of the product shipments and quality levels over time and formulate it as a projected dynamical system. We establish qualitative results, in the form of existence, uniqueness, and stability analysis. An algorithm is proposed, along with a convergence proof. The algorithm tracks the evolution of the product shipment and quality level pattern until an equilibrium is achieved and, at each iteration, yields closed form expressions for the computation of the product shipments and quality levels. It is then utilized to compute solutions to a spectrum of spatial price equilibrium numerical examples in order to explore the impacts of information asymmetry under different scenarios.This work adds to the growing research on spatial competition and product quality but is the first to incorporate information asymmetry of this specific form in both equilibrium and dynamic model versions.
Book Synopsis Dynamic Spatial Competition Between Multi-product Oligopolists by : Gustavo Jose Vicentini
Download or read book Dynamic Spatial Competition Between Multi-product Oligopolists written by Gustavo Jose Vicentini and published by . This book was released on 2007 with total page 118 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: The dissertation provides a detailed study of the location strategy pursued by economic agents in space. The first chapter, "Spatial Pre-Emption by Chain Retailers: An Empirical Investigation," presents an empirical study of the location strategy pursued by multi-store retailers in an urban setting. Data were collected for the 1960-2002 period, on the location of chain supermarkets in the city of Greensboro, NC, and were merged with demographic variables from the Census Bureau. We estimate a discrete choice model where firms choose how many stores to open, their location; and which active stores to exit. We first investigate whether a retailer clusters its stores in space. We find that firms located new stores within proximity to their existing stores for most of the 1960-2002 period. Therefore, we empirically distinguish whether this is an attempt to crowd out the market from the competition (spatial pre-emption) or if cost considerations (spatial scope economies) were the reason. Spatial scope economies were relevant in the 1960-1980 period, but since then have lost importance. This indicates that pre-emptive behavior has increased in importance since 1980. We also test the model for robustness with respect to different geographic definitions of markets, and find that competition was more localized in the earlier half of the data. The second chapter, "Dynamic Spatial Competition Between Multi-Store Firms," proposes a dynamic model of an oligopoly industry characterized by spatial competition between multi-store firms. Firms compete in prices and decide where to open or close stores depending on demand conditions and the number of competitors at different locations. The contribution of the paper is three-fold: first, we provide a dynamic framework to study such oligopoly industries; second, we provide an algorithm to compute the Markov Perfect Equilibria (MPE) of the model; third, we illustrate the model with numerical experiments that analyze the propensity of multi-store retailers to use spatial preemptive behavior. We find that spatial preemptive behavior depends on the level of sunk costs and of consumer transportation costs. The third chapter, "Public Education Provision and the Median Ideal Policy: Evidence from School Quality in Brazil," is based on spatial models of political competition, where political candidates choose their running platforms in the issue space. We study how the provision of public education quality is determined within a politically competitive framework. In particular, we investigate the validity of the median ideal policy theorem by analyzing how public education quality is influenced by the distribution of income in society. Using data from Brazil we analyze the relation between public education policies implemented by elected politicians and the local distribution of income. We then test whether these relationships are consistent with the median ideal policy of the local citizenry by estimating the sensitivity of public education policy to different percentiles of the distribution of income.
Book Synopsis Spatial Competition and Price Discrimination with Capacity Constraints by : Matthias Hunold
Download or read book Spatial Competition and Price Discrimination with Capacity Constraints written by Matthias Hunold and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We characterize mixed-strategy equilibria when capacity constrained suppliers can charge location-based prices to different customers. We establish an equilibrium with prices that weakly increase in the costs of supplying a customer. Despite prices above costs and excess capacities, each supplier exclusively serves its home market in equilibrium. Competition yields volatile market shares and an inefficient allocation of customers to firms. Even ex-post cross-supplies may restore efficiency only partly. We show that consumers may benefit from price discrimination whereas the the firms make the same profits as with uniform pricing. We use our findings to discuss recent competition policy cases and provide hints for a more refined coordinated-effects analysis.
Book Synopsis Competition in a Spatially-differentiated Product Market with Negotiated Prices by : Walter Beckert
Download or read book Competition in a Spatially-differentiated Product Market with Negotiated Prices written by Walter Beckert and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis A Theoretical Analysis of the Effects of Spatial Competition on Pricing by : Chao-shun Hung
Download or read book A Theoretical Analysis of the Effects of Spatial Competition on Pricing written by Chao-shun Hung and published by . This book was released on 1982 with total page 354 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Optimal Product Differentiation in a Circular Model by : Qiang Gong
Download or read book Optimal Product Differentiation in a Circular Model written by Qiang Gong and published by . This book was released on 2016 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since circular model was introduced in Salop (1979), it has been the workhorse for analyzing spatial competition among differentiated firms. A common assumption in this literature is that firms are evenly spaced on the circle, even when entry is allowed. We characterize conditions for even spacing to be an equilibrium, using a two-stage (location-then-price) circular model with general transport cost function. Under duopoly competition, we characterize a mild sufficient condition -- the first derivative of transport cost is concave (together with an assumption governing the transport cost difference to the two firms). If one only considers pure strategy equilibrium in prices, this sufficient condition is weakened to the first derivative of transport cost being -1-concave. These conditions ensure that firms' profits are concave in their prices when firms are evenly spaced and that even spacing maximizes profits. Under oligopoly competition (N>= 2 firms), we characterize a necessary condition for even spacing to be an equilibrium. This necessary condition requires a firm's profit to be concave in location at the symmetric location. It involves the third derivative of transport cost function, so having convex transport cost in general is neither necessary nor sufficient to determine equilibrium location choice. Our results have implications for studies employing circular models, especially in terms of welfare analysis which depends on firms' location choices.
Book Synopsis Asymmetric Cost of Innovation, Sourcing, and Vertical Differentiation by : Jie Ning
Download or read book Asymmetric Cost of Innovation, Sourcing, and Vertical Differentiation written by Jie Ning and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Firms that are more efficient in innovation often sell their high-quality components to less efficient competitors that make similar products. Such sourcing practice reduces product vertical differentiation and intensifies market competition. We study when the efficient firm (firm 1) should provide sourcing, when the inefficient firm (firm 2) should source, and implications of such sourcing practice for consumers. We analyze two dynamic games, one under no-sourcing where the firms compete in quality and price, and the other under sourcing where they share identical quality set by firm 1 and compete in price. We show that if firm 1 has sufficient innovation cost advantage, then firm 2 gives up vertical differentiation and prefers a higher wholesale price in sourcing. Otherwise firm 2 may maintain differentiation and do not source even if sourcing is free. On the contrary, giving up quality distinction and sharing quality with firm 2 generally benefits firm 1, as it gains monopolistic power in setting quality or earns significant sourcing profit in a more competitive market. Interestingly, centralized innovation under sourcing where all investments are pooled to the efficient firm 1 may yield inferior and more expensive quality than decentralized innovation in no-sourcing, due to firm 1 exploiting its monopolistic position. Our findings reveal that efficient firms may offer sourcing to gain monopoly power and extract more value from consumers. Such value extraction could be worsened, rather than mitigated, by product market competition.
Book Synopsis Essays on Firm Strategies and Market Outcomes by : Brady Thomas Vaughan
Download or read book Essays on Firm Strategies and Market Outcomes written by Brady Thomas Vaughan and published by . This book was released on 2015 with total page 113 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the first chapter of my dissertation, Aleksandr Yankelevich and I examine the effects of price matching guarantees on duopoly markets. We find that a commitment to price-match raises prices by altering consumer search behavior in three ways. First, price-matching diminishes firms' incentives to lower prices to attract consumers who have no search costs. Second, for consumers with positive search costs, price-matching lowers the marginal benefit of search, inducing them to accept higher prices. Finally, price-matching can lead to asymmetric equilibria where one firm runs fewer sales and both firms tend to offer smaller discounts than in a symmetric equilibrium. These price increases grow with the proportion of consumers who invoke price-matching guarantees and also in the level of equilibrium asymmetry. The second chapter studies the effect of the complexity of consumers' preferences over a product on that product's market structure. I relate complexity of preferences to the number of dimensions of a Lancasterian characteristic space. Using a novel higher dimensional Hotelling model, I find that a fixed number of firms are likely to be better off competing over products with more complex preferences. Although firms face more intense competition in higher dimensional markets, the greater product differentiation afforded to them allows them to charge higher prices and earn higher profits. This result provides a clear theoretical foundation for the observation that goods associated with more complex preferences typically display a greater variety of products sold. Additionally, I show that the behavior of more than two firms competing in more than one dimension differs wildly from that of firms typically studied in models of spatial competition. The final chapter will examine firms' motives for implementing grandfather clauses that allow certain consumers to continue to access a service at a favorable, but no longer available price. Grandfather clauses permit firms to price discriminate between early adopters and new consumers in exchange for forfeiting the right to optimally set prices for early adopters. They may be used to thwart competition following a structural change, to respond to cost shocks, or to retain customers who consume another good from a multiproduct firm. We analyze under what conditions firms might choose to offer grandfather clauses and what effects they have on welfare.
