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A Note On Product Differentiation In A Linear City And Wage Bargaining

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  • Thomas Grandner

Abstract

Economides (Economics Letters, 1986, 21, pp. 67–71) has shown that within a linear city an equilibrium exists in a two‐stage location–price game when the curvature of the transportation cost function is sufficiently high. One important point is that not all of these equilibria are at maximal differentiation. In this paper, we include an additional stage with decentralized wage bargaining. This intensifies price competition resulting in locations that are nearer to the extremes of the city. The magnitude of this effect depends on the bargaining power of the unions. Contrary to the model with exogenously given costs, if unions are sufficient strong all price equilibria in pure strategies are at maximal differentiation. With a low parameter for the curvature of the transportation cost function unions can improve the location decision from a social viewpoint.

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  • Thomas Grandner, 2010. "A Note On Product Differentiation In A Linear City And Wage Bargaining," Bulletin of Economic Research, Wiley Blackwell, vol. 62(4), pages 407-416, October.
    • Handle: RePEc:bla:buecrs:v:62:y:2010:i:4:p:407-416
    DOI: 10.1111/j.1467-8586.2009.00343.x
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    Cited by:

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    2. Domenico Buccella, 2014. "Bargaining Structures and Agendas in an Unconstrained Hotelling Model," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 8(3), pages 149-167, December.

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