Consistent Price and Location Conjectures in Spatial Competition Models

Remarkable advances have been made in spatial competition theory during the past three decades. Only in recent years, however, have the implications of firms' conjectural responses become well understood. Here research has largely focused on analyzing markets where prices (short run) or prices and locations (medium and long run) are exogenous. This paper examines the equilibrium properties of spatial firms when prices and locations are consistent or endogenous. Price reaction equations are complemented with location reaction equations, consistency conditions are introduced, and numerical solutions are then given. While the simulations are confined to one-dimensional markets, equilibrium solutions unambiguously indicate how prices, locations, and profits are related to the costs of firms, the elasticity of consumer demand, and the presence or absence of market boundaries.