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Bertrand and Cournot in the unidirectional Hotelling model

Stefano Colombo ()

No ief0095, DISCE - Quaderni dell'Istituto di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: The unidirectional Hotelling model where consumers can buy only from firms located on their right (left) is extended to allow for elastic demand functions. A Bertrand-type model and a Cournot-type model are considered. If firms choose location and then set prices, agglomeration never arises; instead, if firms choose location and then set quantities, agglomeration arises at one endpoint of the segment when transportation costs are low enough. Equilibrium distance between firms is lower in Cournot than Bertrand under the whole parameters’ set. We also study the impact of firms’ location on perfect collusion sustainability. We show that when consumers can buy only from firms located on their right (left), the incentive to deviate of each firm decreases the more the firm is located to the right (left) and the more the rival is located to the left (right).

Keywords: Unidirectional Hotelling model; Location equilibrium; Collusion; Bertrand; Cournot. (search for similar items in EconPapers)
JEL-codes: D43 L11 L41 (search for similar items in EconPapers)
Pages: 21
Date: 2010-05
New Economics Papers: this item is included in nep-bec, nep-com, nep-geo, nep-ind, nep-mic and nep-ure
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