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- Title
Price and Variety in the Spokes Model.
- Authors
Chen, Yongmin; Riordan, Michael H.
- Abstract
The spokes model of nonlocalised spatial competition provides a new analytical tool for differentiated oligopoly and a representation of spatial monopolistic competition. An increase in the number of firms leads to lower equilibrium prices when consumers have relatively high product valuations, but, surprisingly, to higher equilibrium prices for intermediate consumer valuations. New entry alters consumer and social welfare through price, market expansion, and matching effects. With free entry, the market may provide too many or too few varieties from a social welfare perspective, and the equilibrium price remains above marginal cost even when the number of firms is arbitrarily large.
- Subjects
PRICING -- Social aspects; CONTINGENT valuation; MONOPOLISTIC competition; OLIGOPOLIES; INDUSTRIAL concentration; COUNTERVAILING power; FAIR-return price; MARKET entry
- Publication
Economic Journal, 2007, Vol 117, Issue 522, p897
- ISSN
0013-0133
- Publication type
Article
- DOI
10.1111/j.1468-0297.2007.02063.x