Mixed duopoly in a Hotelling framework with cubic transportation costs

We examine a two-stage location-price model of a mixed duopoly where a private profit-maximizing firm competes with a public welfare-maximizing firm in a Hotelling-type framework. A noteworthy result in this model is that, with quadratic transportation costs, which has become the usual assumption in...

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Bibliographic Details
Published in:Letters in spatial and resource sciences 2020-08, Vol.13 (2), p.133-149
Main Author: Fernández-Ruiz, Jorge
Format: Article
Language:English
Subjects:
Agricultural Economics
Demography
Duopoly
Economics
Economics and Finance
Environmental Economics
Equilibrium
Geographical Information Systems/Cartography
Landscape/Regional and Urban Planning
Original Paper
Regional/Spatial Science
Transport costs
Transportation
Welfare
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Summary:We examine a two-stage location-price model of a mixed duopoly where a private profit-maximizing firm competes with a public welfare-maximizing firm in a Hotelling-type framework. A noteworthy result in this model is that, with quadratic transportation costs, which has become the usual assumption in the literature, the socially optimal locations are obtained in equilibrium. We show here that under the alternative assumption of cubic transportation costs this result no longer holds: equilibrium locations are socially suboptimal. We find that just as in the case of linear transportation costs, previously studied in the literature, for some locations there is price equilibrium in the second stage of the game and for other locations there is not. But, in contrast with such a case, there is a location pair for which there is price equilibrium in the second stage of the game and neither firm has an incentive to marginally change its location. We also find that, in contrast with the case of quadratic transportation costs, this location pair is not socially optimal.
ISSN:1864-4031
1864-404X
DOI:10.1007/s12076-020-00249-y