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Product differentiation and location decisions under demand uncertainty

Meagher, K.J. and Zauner, K.G. (2004) Product differentiation and location decisions under demand uncertainty. International Journal of Economic Theory, 117 (2). pp. 201-216. ISSN 0022-0531

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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 the exact location of demand. We characterize the unique equilibrium and the socially optimal locations. Contrary to the individual-level random utility models, location uncertainty is a differentiation force. In equilibrium, increases in the variance of the uncertainty lead to greater differentiation, higher expected equilibrium prices and profits, and a greater welfare loss.

Item Type: Article
Institution: The University of York
Academic Units: The University of York > Economics and Related Studies (York)
Depositing User: York RAE Import
Date Deposited: 22 May 2009 10:16
Last Modified: 22 May 2009 10:16
Published Version: http://dx.doi.org/10.1016/j.jet.2003.12.006
Status: Published
Publisher: Elsevier Science B.V.
Identification Number: 10.1016/j.jet.2003.12.006
URI: http://eprints.whiterose.ac.uk/id/eprint/6307

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