Does Asymmetry or Incomplete Information on Firms' Costs Yield Spatial Agglomeration?

Sung-chi Lin (), Hsiao-chi Chen () and Shi-miin Liu ()
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Sung-chi Lin: Department of Economics, National Taipei University
Hsiao-chi Chen: Department of Economics, National Taipei University
Shi-miin Liu: Department of Economics, National Taipei University

Economics Bulletin, 2016, vol. 36, issue 4, 2010-2027

Abstract: This paper extends Hotelling's (1929) spatial game by allowing firms to have asymmetric costs or incomplete information about their rivals' costs. In both cases, there exist equilibria under specific conditions. At the equilibria, the cost-efficient firm will locate at the center of the market and earn positive profit, but the less efficient firm may or may not locate at the market center and produces zero output. Thus, our results do not support the findings of Hotelling (1929) and d'Aspremont et al. (1979).

Keywords: Asymmetric costs; incomplete information; location; price competition; spatial game (search for similar items in EconPapers)
JEL-codes: C7 R3 (search for similar items in EconPapers)
Date: 2016-11-09
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