José Pedro Pontes

Spatial Competition Under Uniform Delivered Pricing

Abstract A Hotelling-type model of spatial competition is considered, in which two firms compete in uniform delivered prices. First, it is shown that there exists no uniform delivered price–location equilibrium when the product sold by the firms is perfectly homogeneous andwhen consumers buy from the firm quoting the lower delivered price. Second, when the product is heterogeneous and when preferences are identically, independently Weibull-distributed with standard deviation μ, we prove that there exists a single uniform delivered price–location equilibrium iff μ≧1/8 times the transportation rate times the size of the market. In equilibrium, firms are located at the center of the market and charge the same uniform delivered price, which equals their average transportation cost, plus a mark-up of 2μ. Finally, we discuss how our result extends to the case of n firms and proceed to a comparison of equilibria under uniform mill and delivered pricing.

Industrial Clusters and Peripheral Areas

This paper is an appraisal of the economic feasibility of the location of clusters of firms in peripheral areas. In a spatial economy formed by two asymmetric regions, an upstream firm supplies an input to two downstream firms. This economy is modelled as a three-stage noncooperative game. In the first stage, the firms choose locations simultaneously. In the second stage, the upstream firm selects a monopoly price for the downstream firms. In the third stage, the final good firms compete in quantities, taking the input price as given. If it is assumed that each firm is active in each market, the agglomeration of all firms in the large region is always a perfect equilibrium, although it need not be unique. If vertical linkages are intermediate and transport costs are high, there is a dispersed equilibrium with the upstream firm in the small region. If vertical linkages are strong and transport costs are low, a cluster can occur in the small region. In this latter case, regional policy can select the small peripheral region as a location for the industrial cluster.

Fragmentation and Clustering in Vertically Linked Industries

This paper models the location of two vertically related firms in a low labor cost country and in a country with a large market. The upstream industry is more labor intensive than the downstream industry. We find that spatial fragmentation occurs for low values of the input-output coefficient and intermediate values of the transport rate, particularly if the countries are very asymmetric in size. Otherwise, we obtain agglomeration either in the low cost country (when the transport rate is low) or in the large market (when the transport rate is high). Multiple agglomerated equilibria arise when the transport cost of the intermediate good is significant.