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Robust Equilibria in Location Games

Berno Buechel () and Nils Roehl ()
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Berno Buechel: University of Hamburg
Nils Roehl: University of Paderborn

Authors registered in the RePEc Author Service: Berno Büchel ()

No 58, Working Papers CIE from Paderborn University, CIE Center for International Economics

Abstract: In the framework of spatial competition, two or more players strategically choose a location in order to attract consumers. It is assumed standardly that consumers with the same favorite location fully agree on the ranking of all possible locations. To investigate the necessity of this questionable and restrictive assumption, we model heterogeneity in consumers' distance perceptions by individual edge lengths of a given graph. A profile of location choices is called a ``robust equilibrium'' if it is a Nash equilibrium in several games which differ only by the consumers' perceptions of distances. For a finite number of players and any distribution of consumers, we provide a full characterization of all robust equilibria and derive structural conditions for their existence. Furthermore, we discuss whether the classical observations of minimal differentiation and inefficiency are robust phenomena. Thereby, we find strong support for an old conjecture that in equilibrium firms form local clusters.

Keywords: spatial competition; Hotelling-Downs; networks; graphs; Nash equilibrium; median; minimal differentiation (search for similar items in EconPapers)
JEL-codes: C72 D49 P16 D43 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2013-02
New Economics Papers: this item is included in nep-com, nep-geo, nep-gth, nep-mic and nep-ure
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Journal Article: Robust equilibria in location games (2015) Downloads
Working Paper: Robust Equilibria in Location Games (2013) Downloads
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