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Robust Equilibria in Location Games

Author

Listed:
  • Berno Buechel

    (University of Hamburg)

  • Nils Roehl

    (University of Paderborn)

Abstract
In the framework of spatial competition, two or more players strategically choose a location in order to attract consumers. It is assumed standardly that consumers with the same favorite location fully agree on the ranking of all possible locations. To investigate the necessity of this questionable and restrictive assumption, we model heterogeneity in consumers' distance perceptions by individual edge lengths of a given graph. A profile of location choices is called a ``robust equilibrium'' if it is a Nash equilibrium in several games which differ only by the consumers' perceptions of distances. For a finite number of players and any distribution of consumers, we provide a full characterization of all robust equilibria and derive structural conditions for their existence. Furthermore, we discuss whether the classical observations of minimal differentiation and inefficiency are robust phenomena. Thereby, we find strong support for an old conjecture that in equilibrium firms form local clusters.

Suggested Citation

  • Berno Buechel & Nils Roehl, 2013. "Robust Equilibria in Location Games," Working Papers Dissertations 03, Paderborn University, Faculty of Business Administration and Economics.
    • Handle: RePEc:pdn:dispap:03
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    References listed on IDEAS

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    Cited by:

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    2. Wen-Chung Guo & Fu-Chuan Lai, 2020. "Spatial Cournot competition in two intersecting circular markets," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 64(1), pages 37-56, February.
    3. Dilek, Hande & Karaer, Özgen & Nadar, Emre, 2018. "Retail location competition under carbon penalty," European Journal of Operational Research, Elsevier, vol. 269(1), pages 146-158.
    4. Giat, Yahel, 2019. "A location model for boycotting with an application to kosher certification," European Journal of Operational Research, Elsevier, vol. 273(3), pages 1109-1118.
    5. Buechel, Berno & Klein, Jan, 2014. "Do Consumers' Preferences Really Matter? - A Note on Spatial Competition with Restricted Strategies," MPRA Paper 55288, University Library of Munich, Germany.
    6. Ghavamifar, Ali & Makui, Ahmad & Taleizadeh, Ata Allah, 2018. "Designing a resilient competitive supply chain network under disruption risks: A real-world application," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 115(C), pages 87-109.

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    More about this item

    Keywords

    spatial competition; Hotelling-Downs; networks; graphs; Nash equilibrium; median; minimal differentiation;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D49 - Microeconomics - - Market Structure, Pricing, and Design - - - Other
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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