On price competition in location-price models with spatially separated markets |
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Authors: | María Dolores García Pérez Pascual Fernández Hernández Blas Pelegrín Pelegrín |
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Institution: | (1) Administración y Dirección de Empresas, Universidad Católica San Antonio, 30107 Guadalupe, Murcia, Spain;(2) Departmento de Estadística e Investigación Operativa Facultad de Matemáticas, Campus del Espinardo, Universidad de Murcia, 30100 Espinardo, Murcia, Spain |
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Abstract: | In this paper we study price competition for two types of location-price models in which facility locations are set up and
price decisions have to be made in order to maximise profit. We discuss the existence and determination of equilibrium prices
in a general location space when facilities have different production costs. It is assumed that each price is bounded from
below and demand for a single homogeneous product is price-inelastic. When facilities set mill prices, a price equilibrium
rarely exists and necessary conditions for existence are obtained. In particular, when the location space is a tree network,
we give a characterisation of the locations for which a unique equilibrium exists for two competitors. With spatial price
discrimination, though equilibrium prices might not exist, it is shown that ε-equilibrium prices always exist for any locations
of the facilities. A characterisation of ε-equilibrium is also given. Then the location-price problem is reduced to a location
problem. A comparison of results with the two types of price determination is also presented.
This work has been supported by the Ministry of Science and Technology of Spain under the research project BEC2002-01026,
in part financed by the European Regional Development Fund (ERDF). |
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Keywords: | Competitive location equilibrium prices non-cooperative games |
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