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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Friebel, Guido / Mendola, Mariapia / Requate, Till / Tsui, Kevin / Wichardt, Philipp / Zulehner, Christine

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Price-Dependent Demand in Spatial Models

Yiquan Gu1 / Tobias Wenzel2

1University of Liverpool,

2University of Düsseldorf,

Citation Information: The B.E. Journal of Economic Analysis & Policy. Volume 12, Issue 1, ISSN (Online) 1935-1682, DOI: 10.1515/1935-1682.3126, March 2012

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This paper introduces price-dependent individual demand into the circular city model of product differentiation. We show that for any finite number of firms, an unique symmetric price equilibrium exists provided that demand functions are not “too” convex. As in the case of unit demand, the number of firms under free entry decreases in the fixed cost of entry while increases in the transportation cost of consumers. However, this number is no longer always in excess of the socially optimal level. Insufficient entry occurs when the fixed and transportation costs are high.

Keywords: spatial models; price-dependent demand; horizontal product differentiation; excess entry theorem

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