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Author: | Balvers, R. Szerb, L. |
Title: | Location in the Hotelling duopoly model with demand uncertainty |
Journal: | European Economic Review
1996 : AUG, VOL. 40:7, p. 1453-1461 |
Index terms: | DEMAND UNCERTAINTY DUOPOLY LOCATION OF INDUSTRY RISK |
Language: | eng |
Abstract: | Demand uncertainty is introduced into a Hotelling environment with fixed prices by allowing random shocks to the desirability of the firm's product. Given these random shocks, the choice of location affects the average level of demand as well as the riskiness of demand. Reducing the distance to the other firm raises expected demand and payoff but also lowers the degree of differentiation btw. firms. Thus, demand uncertainty is raised. Risk averse firms will locate away from the center and, depending on the degree of risk aversion, markup and size of the market, may locate on either side of the quartile points. |
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