Michel Moreaux

Location distortions under incomplete information

Abstract In this paper we consider spatial competition between two firms which first choose sequentially their locations and then compete in prices, when there is incomplete information of the second mover firm about the first mover firms cost advantage. We completely characterize the pure strategy equilibria and we show how the equilibrium locations differ from the complete information locations, i.e. how incomplete information affects product differentiation. The natural bound created by space constraints on differentiation implies that Kreps intuitive criterion does not necessarily select the separating equilibrium as in a classical signaling model.

Strategic nonlinear pricing

The objective of this paper is to examine the role of nonlinear strategies in a standard oligopoly framework. We demonstrate that nonlinear pricing may indeed emerge as an equilibrium strategy, but only when firms produce differentiated products, when one firm retains market power due to a cost advantage, or as part of an equilibrium in mixed strategies. In addition, we examine the role of nonlinear pricing in a spatial-competition framework. Our main conclusion is that in highly competitive markets, nonlinear pricing strategies are not likely to emerge as an equilibrium.