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Do Firms Compete When Demand is Low? A Model of Spatial Differentiation

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  • A. Chirco
  • L. Lambertini

Abstract

In a spatial competition model, changes in firms competitive behaviour may occur when the hypothesis that individual gross surplus is positive in equilibrium is relaxed. We prove that there exists a region of the relevant parameter where firms behaviour mimics collusion, while in another range they find it optimal to isolate from each other and behave monopolistically.

Suggested Citation

  • A. Chirco & L. Lambertini, 1994. "Do Firms Compete When Demand is Low? A Model of Spatial Differentiation," Working Papers 210, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:210
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    References listed on IDEAS

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    1. Beath,John & Katsoulacos,Yannis, 1991. "The Economic Theory of Product Differentiation," Cambridge Books, Cambridge University Press, number 9780521335263, January.
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    4. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    5. Stiglitz, Joseph E, 1984. "Price Rigidities and Market Structure," American Economic Review, American Economic Association, vol. 74(2), pages 350-355, May.
    6. 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.
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