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| Author: | Chen, Y. Riordan, M. H. |
| Title: | Price and variety in the spokes model |
| Journal: | Economic Journal
2007 : JUL, VOL. 117:522, p. 897-921 |
| Index terms: | spatial economics competitive equilibrium industrial concentration market entry oligopoly price determination welfare |
| Language: | eng |
| Abstract: | This paper presents spokes model of nonlocalised spatial competition providing a novel analytical tool for differentiated oligopoly and representation of spatial monopolistic competition. In a situation in which consumers have relatively high product valuation, the increase in amount of firms results in lower equilibrium prices. On the contrary, for intermediate consumer valuations the resulted equilibrium prices are higher. The entry of new firms affects consumer and social welfare, and the free entry does not secure optimal amount of varieties from social welfare perspective. In addition, the equilibrium price is higher than marginal cost even when there are arbitrarily large number of firms in the market. |
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