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Cournot Competition on the Hotelling Line Yields at Most Three Varieties

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  • Andreea Cosnita-Langlais

    (Univ. Paris Nanterre, CNRS)

  • Eric Langlais

    (Univ. Paris Nanterre, CNRS)

Abstract

This paper reexamines the equilibrium product choices in a spatial Cournot n- oligopoly on the linear market by considering the case of output that accidentally harms consumers and firms that are subject to product liability. We characterize the resulting spatial pattern in terms of uniqueness and stability. For low levels of the unit cost of accident, central agglomeration is the unique and stable location equilibrium. For a high enough unit cost of accident, multiple equilibria exist: from central agglomeration to partial dispersion (both asymmetric and symmetric). In this case we show that asymmetric dispersion equilibria as well as symmetrical three-variety equilibria are unstable, whereas there always exists a symmetrical two-variety location equilibrium that is stable. Finally, complete dispersion appears as a very specific case that is limited to duopoly and triopoly: For markets with more firms, equilibrium product differentiation involves partial clustering on three varieties/locations.

Suggested Citation

  • Andreea Cosnita-Langlais & Eric Langlais, 2024. "Cournot Competition on the Hotelling Line Yields at Most Three Varieties," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(3), pages 669-704, November.
    • Handle: RePEc:kap:revind:v:65:y:2024:i:3:d:10.1007_s11151-024-09979-5
    DOI: 10.1007/s11151-024-09979-5
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    Keywords

    Horizontal differentiation; Spatial model; Strategic location; Product choice; Cournot competition; Oligopoly; Product liability;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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