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Hotelling meets Weber

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  • Lai, Fu-Chuan
  • Tabuchi, Takatoshi

Abstract

In this paper, spatial competition between two sellers in a market (Hotelling, 1929) and total transportation costs minimization (Weber, 1909) are combined, and equilibrium and optimum locations of firms are analyzed along with the consequent policy implications. We show that when the output prices are fixed and equal, both firms agglomerate at the market center, irrespective of the distribution of inputs. Further, we also show that when output price is endogenous, the middle point of firm locations in Hotelling's model is identical to the Weber point. Finally, we show that the locations of Hotelling's firms are far from the socially optimal location.

Suggested Citation

  • Lai, Fu-Chuan & Tabuchi, Takatoshi, 2012. "Hotelling meets Weber," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 1017-1022.
    • Handle: RePEc:eee:regeco:v:42:y:2012:i:6:p:1017-1022
    DOI: 10.1016/j.regsciurbeco.2011.09.001
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    References listed on IDEAS

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    1. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
    2. repec:cor:louvrp:-747 is not listed on IDEAS
    3. M Birkin & A G Wilson, 1986. "Industrial Location Models 2: Weber, Palander, Hotelling, and Extensions within a New Framework," Environment and Planning A, , vol. 18(3), pages 293-306, March.
    4. P. Hansen & J.-F. Thisse & R. E. Wendell, 1986. "Equivalence of Solutions to Network Location Problems," Mathematics of Operations Research, INFORMS, vol. 11(4), pages 672-678, November.
    5. JASKOLD GABSZEWICZ, Jean & THISSE, Jacques-François, 1986. "Spatial competition and the location of firms," LIDAM Reprints CORE 713, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. M Birkin & A G Wilson, 1986. "Industrial Location Models 1: A Review and an Integrating Framework," Environment and Planning A, , vol. 18(2), pages 175-205, February.
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    Cited by:

    1. Guo, Wen-Chung & Lai, Fu-Chuan & Zeng, Dao-Zhi, 2015. "A Hotelling model with production," Mathematical Social Sciences, Elsevier, vol. 73(C), pages 40-49.

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    More about this item

    Keywords

    Hotelling; Weber; Location competition; Social welfare;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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