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Spatial competition and social welfare considering different feasible location regions

Shuxiao Sun (), Xiaona Zheng (), Huaqing Hu () and Tao Huang ()
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Shuxiao Sun: Minjiang University
Xiaona Zheng: Peking University
Huaqing Hu: Peking University
Tao Huang: Peking University

Journal of Economics, 2023, vol. 138, issue 1, No 2, 17-50

Abstract: Abstract This research examines the location-price game of two firms, where consumers with quadratic transportation costs are dispersed along the linear city [0, 1], while firms can select their business sites on a continuous but arbitrarily constrained interval [m, n] or on a discontinuous interval separated by a continuous zoning area, in which business activities are prohibited. We find that at least one subgame perfect equilibrium in pure strategies exists. Multiple equilibria may emerge when the continuous location region is far from consumers with the remote firm earning a zero profit. When the continuous region is relatively small and not too far from consumers, two firms choose to locate separately at the endpoints of the interval. When considering the discontinuous location region, the highest social surplus can be achieved when both firms are located on one side of the zoning area.

Keywords: Spatial competition; Location choice; Hotelling model; Zoning regulation; Social welfare (search for similar items in EconPapers)
JEL-codes: D43 L13 R14 R52 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s00712-022-00794-8

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