Competition by choice

Marc Dudey ()

No 327, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper relates firm location choice and consumer search. Firms that cluster together attract consumers by facilitating price comparison, but clustering increases the intensity of local competition. I construct a simple model which shows that firms may choose head-on competition by locating together. In special cases, this can be the unique equilibrium outcome. I also use the model to show that price setting firms may earn more in equilibrium than quantity setting firms.

Keywords: Competition; Consumer behavior; Business enterprises (search for similar items in EconPapers)
Date: 1988
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Citations: View citations in EconPapers (12)

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