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Location choice and costly product differentiation in a mixed duopoly

Hongkun Ma (), X. Wang () and Chenhang Zeng ()
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Hongkun Ma: Sun Yat-sen University
Chenhang Zeng: Zhongnan University of Economics and Law

The Annals of Regional Science, 2021, vol. 66, issue 1, No 7, 137-159

Abstract: Abstract This paper introduces costly product differentiation into a mixed duopoly with strategic location choice in the first stage and price competition in the second stage. Initially, both firms locate at the center with no product differentiation. We demonstrate that the location choices critically depend on the effectiveness of investments in creating product differentiation, and the nationality of the private firm. Firstly, firms choose to move toward the edge only when the investments are sufficiently effective, regardless of whether the private firm is domestic or foreign. Secondly, a profit-maximizing (domestic or foreign) private firm invests more than the public firm which maximizes social welfare. Thirdly, a mixed duopoly with a foreign firm generates a lower degree of product differentiation in comparison to that with a domestic private firm.

JEL-codes: D43 H42 L13 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s00168-020-01014-1

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