Rationality, Stability, and Endogenous Price Formation in Spatially Interdependent Markets

Paul Plummer, Eric Sheppard and Robert Haining
Additional contact information
Paul Plummer: Department of Geography, University of Calgary, Calgary, AB, T2N 1N4 Canada
Eric Sheppard: Department of Geography, University of Minnesota, Minneapolis, MN 55455, USA
Robert Haining: Department of Geography, University of Cambridge, Downing Place, Cambridge CB2 3EN, England

Environment and Planning A, 2012, vol. 44, issue 3, 538-559

Abstract: Spatial competition between firms is standard fare for traditional location theory and contemporary geographical economics. In this paper we examine the implications of modeling spatial competition using an approach grounded in geographical political economy, using mathematics as the language of theory. We make no presumptions about the existence of, or agents' prior knowledge about, equilibrium; utilizing methodologies from nonlinear dynamics appropriate to this situation. For competition between equally spaced retailers along an unbounded linear market, selling a homogeneous commodity to uniformly dispersed consumers we show that Nash equilibrium, which rationalizes the existence and persistence of spatial price equilibria, need not hold. Depending on behavioral parameters, out-of-equilibrium dynamics may not converge toward equilibrium, displaying instead limit-cycle or aperiodic behavior. Further, even for cases that do converge, it can be rational for firms in equilibrium to set prices which depart from it, thereby increasing their profits. The presumptions of geographical economics concerning equilibrium are not adequate to make sense of capitalist spatial price competition.

Keywords: rationality; spatial price competition; sociospatial dialectic; complexity; nonlinear dynamics (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://journals.sagepub.com/doi/10.1068/a43348 (text/html)

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:sae:envira:v:44:y:2012:i:3:p:538-559

DOI: 10.1068/a43348

Access Statistics for this article

More articles in Environment and Planning A
Bibliographic data for series maintained by SAGE Publications ().