Week 12_market boundary

Week 12_market boundary - Department of Food and Resource...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
LESE204 Department of Food and Resource Economics Market Boundary
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
LESE204 Department of Food and Resource Economics 1. Simple world Hotelling’s location game Assumptions: - Two firms sell (competing) the products which are homogenous - Consumers are uniformly distributed - Two firms charge same price - Consumers are caring about the travel costs Where is the best locations for firm A and firm B Firm A Firm B ???? ????
Background image of page 2
LESE204 Department of Food and Resource Economics 1. Simple world Hotelling’s location game < Example> Firm A Firm B 0 1 x a 1- b Consumer i a b Firm A charges price P A , firm B charges price P B Travel cost per unit distance is T Consumer in location x would compare the costs in going to A and B Total cost in going to firm A : P A + T(1-a) Total cost in going to firm B : P B + T(x-1+b)
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
LESE204 Department of Food and Resource Economics 1. Simple world Hotelling’s location game < Example> Firm A Firm B 0 1 x a 1- b Consumer i a b Pricing strategy in such a way that consumer feels indifference between going to firm A or B P A + T(1-a) = P B + T(x-1+b) P A = P B - T(1-a-b) If firm A moves close to the center a P A Same is true for firm B two firms will locate in the center.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 16

Week 12_market boundary - Department of Food and Resource...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online