Location Choices under Quality Uncertainty

Nikolaos Vettas () and Charalambos Christou

No 4323, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We examine a linear city duopoly where firms choose their locations to maximize expected profits, uncertain about how consumers will assess the relative quality of their products. Equilibrium locations depend on the ratio of the expected quality superiority to the strength of horizontal differentiation. When it is small, firms locate at opposite endpoints. As it becomes larger, agglomeration around the centre also emerges as an equilibrium and, eventually, agglomeration becomes the only equilibrium.

Keywords: Location; Product differentiation; Quality uncertainty; Linear city (search for similar items in EconPapers)
JEL-codes: L13 L15 (search for similar items in EconPapers)
Date: 2004-03
New Economics Papers: this item is included in nep-ure
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Journal Article: Location choices under quality uncertainty (2005)
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