Spatial Competition with Production Before Sales

Simon Anderson and Ronald Fischer

Chapter 17 in Does Economic Space Matter?, 1993, pp 335-351 from Palgrave Macmillan

Abstract: Abstract Firms typically invest in productive capacity before output is earmarked to particular markets. This paper studies the sequential decision choice of production and allocation to spatially separated markets. The resulting equilibrium will generally differ from equilibrium with simultaneous choice. Whether total output is higher or lower in the sequential model depends on an allocation-shifting effect: firms wish to rearrange their rivals’ allocations out of the most profitable market (desire-to-shift effect), and changes in capacity are a strategic device enabling them to do this (ability-to-shift effect). If firms have both the desire and the ability, there will be allocation shifting. We examine allocation shifting for a duopoly serving two spatially separated markets. Numerical simulations for a cross-hauling model show that the allocation-shifting effect can be substantial. We also consider a case with firms at either end of a linear segment over which markets are evenly distributed. It is shown that the direction of allocation shifting depends on the convexity or concavity of demand: for linear demand the two-stage equilibrium is identical to that of the simultaneous game.

Keywords: Symmetric Equilibrium; Home Market; Equilibrium Output; Linear Demand; Spatial Competition (search for similar items in EconPapers)
Date: 1993
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-22906-2_18

Ordering information: This item can be ordered from
http://www.palgrave.com/9781349229062

DOI: 10.1007/978-1-349-22906-2_18

Access Statistics for this chapter

More chapters in Palgrave Macmillan Books from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().