On the Existence and Social Optimality of Equilibria in a Hotelling Game with Uncertain Demand and Linear-Quadratic Costs
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Michal Krol
This paper examines a variant of the Hotelling two-stage mill-pricing duopoly game with “linear-quadratic” transport costs and the uniform customer distribution subject to a random shock. The demand is equally likely to be found anywhere in a fixed interval of feasible product characteristics, with the ex-post differentiation of tastes parametrized to reflect the degree of uncertainty. It turns out that, for uncertainty big enough, the presence of a linear component in the cost function no longer rules out an analytical solution to the game, which is a common problem in spatial competition models. In particular, a subgame-perfect equilibrium is shown to exist in which the firms’ locations approach the socially efficient ones as uncertainty further increases, regardless of the curvature of the cost function. When the demand uncertainty reaches maximum, mill-pricing is equivalent to spatial price discrimination under the most general conditions.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Articles in the same Issue
- Advances Article
- Strategy-Proof Compromises
- Make-or-Buy Decisions and the Manipulability of Performance Measures
- Optimal Mechanism for Selling Two Goods
- A Property of Solutions to Linear Monopoly Problems
- Interactive Epistemology and Solution Concepts for Games with Asymmetric Information
- No-Trade in the Laboratory
- Symmetry or Dynamic Consistency?
- Contributions Article
- When Two-Part Tariffs are Not Enough: Mixing with Nonlinear Pricing
- Sellers Like Clusters
- Network Architecture and the Left-Right Spectrum
- Information, Authority, and Corporate Hierarchies
- The Benefit of Mixing Private Noise into Public Information in Beauty Contest Games
- Intertemporal Bounded Rationality as Consideration Sets with Contraction Consistency
- The Survival Assumption in Intertemporal Economies
- A New Existence and Uniqueness Theorem for Continuous Games
- Multiproduct Duopoly with Vertical Differentiation
- Topics Article
- Sequential Investments, Know-How Transmission, and Optimal Organization
- Input Production Joint Venture
- On the Existence and Social Optimality of Equilibria in a Hotelling Game with Uncertain Demand and Linear-Quadratic Costs
- Stochastic Stability in Finitely Repeated Two Player Games
- Alliance Partner Choice in Markets with Vertical and Horizontal Externalities
- Transitional Dynamics in a Tullock Contest with a General Cost Function
- Strategic Choice of Preferences: the Persona Model
- Implementation of the Core in College Admissions Problems When Colleagues Matter
