Lecture 6: March 7, 2006
Search and Switching Costs - Dudey (1990 AER)
Question: why do all the music shops in Portland, OR locate around the same few
blocks of town? Dudey has an answer.
Stage 1: Firms simultaneously choose a locat
(2) L > R . Now we have overlap and we can dene the marginal man by:
U L (L ) = U R ( L ) = U .
Thus for i = cfw_L, R, (somehow!):
u(qi (i ), i , v ) ci qi (i ) U = 0.
Again the prots on the boundry guy are zero. See G-4.2.
Problem Set 1
1. Linear Hig
so prots are increasing in the degree of dierentiation under the assumption that
everyone buys the good.
What about welfare implications? Total welfare is:
W =V 2
tx dx c.
See G-3.1. Thus,
t 1/ 2
W = V 2[ x2 ]0 c.
W = V c.
Economics 661: Theoretical IO
Updated: May 11, 2006
Lecture 1: January 31, 2006
Product Selection, Quality and Advertising
Does a monopolist produce the right amount of variety? How do we model product