linear_city_text

linear_city_text - Discussion of the Linear-City Di...

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Ben Polak, Econ 159a/MGT522a October 2, 2007 The Model . We can think a ‘city’ as a line of length one. { P 1 and P 2 respectively. { { Potential customers are evenly distributed along the line, one at each point. { Let the total population be one (or, if you prefer, think in terms of market shares). { A customer at position y P 1 + ty 2 < P 2 + t (1 ± y ) 2 : (1) Interpretation think of the line as representing geographical distance, then we can think of the t ² (distance) 2 term as the product quality | say, fat content in ice-cream | then this term is a measure of the inconvenience of having to move away from the customer’s most desired point. As the transport-cost parameter t gets larger, we can think of products becoming more di±erentiated from the point of view of the customers. If t = 0 then the products are perfect substitutes. What happens?
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This note was uploaded on 02/13/2012 for the course ECON 159 at Yale.

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linear_city_text - Discussion of the Linear-City Di...

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