Two Stage (Perfect) Equilibrium in Hotelling's Model

摘要: HOTELLING [I 929] suggests that his spatial competition model can be used to describe a wide range of differentiation problems. He points the selection product variety within an industry as potential application. Most subsequent work in tradition has taken equivalence two problems for granted. In this note, we look more closely at equivalence. We distinguish between types differentiated products according preferences assumed with respect those products. Building on distinction, recognize demand faced by firm locating Hotelling's line is analogous selecting horizontally product. It should emphasized, thus, geographical and problem no means general relies specific assumptions about consumers' preferences. Next, formulate small model, close one which firms select Within it will shown pure strategy price equilibrium exists every pair This statement contrasted results d'Aspremont et al. [I979], who have original setting fails exist when are too together. 1 addition, examine two-stage game: first stage, each selects product; second defines its seek existence perfect game. A context viewed Nash game product, aware non-cooperative occur their choices. contrary principle, maximise (i.e. locate opposite ends market).