Product flexibility and price competition in Hotelling's duopoly

Pierre Fleckinger and Thierry Lafay

Mathematical Social Sciences, 2010, vol. 60, issue 1, pages 61-68

Abstract: In a Hotelling's duopoly with a general transportation cost function, we study competition through catalog: each firm chooses at the same time a price and a location. With simultaneous catalog offers, there is no equilibrium in pure strategies for high valuations of the consumers, while a Stackelberg equilibrium exists under mild conditions. The follower is better off than the leader, whose price is smaller: the location preemption effect is weaker than the price leadership effect. We obtain closed-form solutions for the linear and quadratic cost cases. Using these results, we discuss the nature of competition depending on the relative flexibility of products and prices.

Keywords: Horizontal; differentiation; Catalog; competition; Sequential; moves (search for similar items in EconPapers)
Date: 2010
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