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A Hotelling model of spatial competition with local production

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  • T. Heikkinen

Abstract

Local production is a central theme in sustainable development and is of increasing current interest in e.g. food and energy production. This paper extends the classical Hotelling duopoly model of spatial competition to allowing for local production at the household level. The model is applied to study the existence and efficiency of a price equilibrium in the presence of local production. The optimal solution to the corresponding planning problem minimizing the sum of the resource costs is derived. Assuming the duopolists are symmetrically located on a line, the equilibrium number of local producers (“ecological entrepreneurs”) exceeds the optimal number. However, local production implies a lower equilibrium price than the standard Hotelling model and may extend the range of the symmetric locations of the duopolists for which a price equilibrium exists. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • T. Heikkinen, 2014. "A Hotelling model of spatial competition with local production," Letters in Spatial and Resource Sciences, Springer, vol. 7(2), pages 103-120, July.
    • Handle: RePEc:spr:lsprsc:v:7:y:2014:i:2:p:103-120
    DOI: 10.1007/s12076-013-0104-9
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    References listed on IDEAS

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    1. Martinez, Steve & Hand, Michael & Da Pra, Michelle & Pollack, Susan & Ralston, Katherine & Smith, Travis & Vogel, Stephen & Clarke, Shellye & Lohr, Luanne & Low, Sarah & Newman, Constance, 2010. "Local food systems: concepts, impacts, and issues," MPRA Paper 24313, University Library of Munich, Germany.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    3. Nakayama, Yuji, 2009. "The impact of e-commerce: It always benefits consumers, but may reduce social welfare," Japan and the World Economy, Elsevier, vol. 21(3), pages 239-247, August.
    4. repec:bla:ecinqu:v:51:y:2013:i:3:p:1750-1763 is not listed on IDEAS
    5. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    6. G. Cornelis van Kooten, 2009. "Wind Power: The Economic Impact of Intermittency," Working Papers 2009-04, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
    7. 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.
    8. Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
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    Cited by:

    1. T. Heikkinen, 2015. "A spatial equilibrium model of local nonmarket production with capacity constraints," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 62(4), pages 337-361, December.

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    More about this item

    Keywords

    Spatial economics; Price equilibrium; Duopoly; Local production ; Energy economics; Ecological entrepreneurship; L13; L39; D43; Q42; Q50;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L39 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Other
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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