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A Model of Three Cities

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  • Stefano Colombo

Abstract

We develop a spatial model representing three cities of different size and connected by a road. We study two versions of a two-stage game where firms first decide where to locate and then set quantities or prices. We show that, in the case of quantity competition, maximal dispersion or agglomeration arises. Also, multiple equilibria are possible. In the case of price competition, maximal dispersion or partial dispersion arises. An asymmetric spatial equilibrium is possible even if the model is completely symmetric ex ante. A number of results are also derived when comparing the Cournot and the Bertrand locational equilibria in terms of profits, consumer surplus, and total welfare, and with respect to the welfare-maximizing locations.

Suggested Citation

  • Stefano Colombo, 2016. "A Model of Three Cities," International Regional Science Review, , vol. 39(4), pages 386-416, October.
    • Handle: RePEc:sae:inrsre:v:39:y:2016:i:4:p:386-416
    DOI: 10.1177/0160017614543849
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    Cited by:

    1. Stefano Colombo & Zemin Hou, 2021. "Location-Price Equilibria when Traditional Retailers Compete Against an Online Retailer," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(3), pages 483-502, November.
    2. Wen-Chung Guo & Fu-Chuan Lai, 2015. "Spatial Cournot competition in a linear–circular market," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(3), pages 819-834, May.

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