Partial Cooperation in Location Choice: Salop’s Model with Three Firms

Subhadip Chakrabarti and Robert P. Gilles ()
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Robert P. Gilles: Queen’s University of Belfast

A chapter in Spatial Interaction Models, 2017, pp 21-38 from Springer

Abstract: Abstract We consider how three firms compete in a Salop location model and how cooperation in location choice by two of these firms affects the outcomes. We consider the classical case of linear transportation costs as a two-stage game in which the firms select first a location on a unit circle along which consumers are dispersed evenly, followed by the competitive selection of a price. Standard analysis restricts itself to purely competitive selection of location; instead, we focus on the situation in which two firms collectively decide about location, but price their products competitively after the location choice has been effectuated. We show that such partial coordination of location is beneficial to all firms, since it reduces the number of equilibria significantly and, thereby, the resulting coordination problem. Subsequently, we show that the case of quadratic transportation costs changes the main conclusions only marginally.

Keywords: Nash Equilibrium; Location Choice; Equilibrium Concept; Quadratic Cost; Linear Cost (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:spochp:978-3-319-52654-6_2

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DOI: 10.1007/978-3-319-52654-6_2

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