Consider the standard Hotelling model (two shops selling an identical good, same marginal costs, there is a linear city represented by the interval [0, 1] in which consumers of mass equal to 1 live, the market is covered and there are transportation costs) with the following twist: all consumers live in a big skyscraper at the midpoint of the city (at 1/2). Explain whether there exists an equilibrium in which the two shops choose to locate at the same position.

Consider the standard Hotelling model (two shops selling an identical good, same marginal costs, there is a linear city represented by the interval [0, 1] in which consumers of mass equal to 1 live, the market is covered and there are transportation costs) with the following twist: all consumers live in a big skyscraper at the midpoint of the city (at 1/2). Explain whether there exists an equilibrium in which the two shops choose to locate at the same position.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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