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- Title
Location-then-price competition with uncertain consumer tastes.
- Authors
Meagher, Kieron J.; Zauner, Klaus G.
- Abstract
We investigate Hotelling's duopoly game of location-then-price choices with quadratic transportation costs and uniformly distributed consumers under the assumption that firms are uncertain about consumer tastes. When the uncertainty has a uniform distribution on the closed interval [-L/2,L/2], with 0 < L < ∞, we characterize the unique equilibrium and the socially optimal locations. Contrary to the individual-level random utility models, we find that uncertainty is a differentiation force. For small (large) sizes of the uncertainty, there is excessive (insufficient) differentiation. More uncertainty about consumer tastes can have positive or negative welfare effects, depending on the size of the uncertainty.
- Subjects
ECONOMIC competition; PRICES; INDUSTRIAL location; CONSUMER behavior; PRODUCT differentiation
- Publication
Economic Theory, 2005, Vol 25, Issue 4, p799
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/s00199-004-0520-6