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Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

A Full Equilibrium Characterization in Hotelling's Location Model

Vol.17, No.3, September , 79–91


English Version |  Korean Version
  •   (Sogang University)

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Abstract  

We reexamine the equilibrium in the celebrated Hotelling's linear city location model. In most analysis in the literature, it is assumed that every consumer should buy from one of two firms. This assumption does hold when the consumer's valuation is not so large compared with the travelling cost. Hence, it does not suffice to examine the strategic interaction between two firms. On the other hand, when the consumer's valuation is not so small compared with the travelling cost, the market is not completely separated by two local monopolies without strategic interaction. In the intermediate ranges, both possibilities of strategic interaction and local monopoly without strategic interaction must be examined. In this intermediate case, it is shown that multiple equilibria exist including the symmetric one, prices are strategic substitutes rather than strategic complements, and finally in every equilibria, every consumer indeed buys from one of two firms.


Keywords
   Hotelling's Location Model, Strategic Complements, Strategic Substitutes

JEL classification codes
   C72, D43, L13
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