Dynamics and equilibria under incremental horizontal differentiation on the Salop circle

B. Vermeulen, J.A. Poutré, La, A.G. Kok, de

Research output: Book/ReportReportAcademic

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Abstract

We study product differentiation on a Salop circle when firms relocate incrementally due to bounded rationality. We prove that, under common assumptions on demand, firms relocate only when two or more firms target the same niche. In any other case, there is no incentive for any firm to relocate incrementally. We prove that all distributions in which firms are sufficiently far apart in product space are unstable Nash equilibria. We prove, in particular, that the classical equidistant distribution is an unstable Nash equilibrium that cannot emerge from another distribution. However, we show that if each firm is engaged in head-on rivalry with one other competitor, the industry converges to a ’equidistantesque’ equilibrium of clusters of rivals.
Original languageEnglish
Place of PublicationEindhoven
PublisherTechnische Universiteit Eindhoven
Number of pages14
Publication statusPublished - 2013

Publication series

NameBETA publicatie : working papers
Volume436
ISSN (Print)1386-9213

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Incremental
Horizontal differentiation
Nash equilibrium
Industry
Incentives
Rivalry
Product differentiation
Bounded rationality
Competitors
Niche

Cite this

Vermeulen, B., Poutré, La, J. A., & Kok, de, A. G. (2013). Dynamics and equilibria under incremental horizontal differentiation on the Salop circle. (BETA publicatie : working papers; Vol. 436). Eindhoven: Technische Universiteit Eindhoven.
Vermeulen, B. ; Poutré, La, J.A. ; Kok, de, A.G. / Dynamics and equilibria under incremental horizontal differentiation on the Salop circle. Eindhoven : Technische Universiteit Eindhoven, 2013. 14 p. (BETA publicatie : working papers).
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Vermeulen, B, Poutré, La, JA & Kok, de, AG 2013, Dynamics and equilibria under incremental horizontal differentiation on the Salop circle. BETA publicatie : working papers, vol. 436, Technische Universiteit Eindhoven, Eindhoven.

Dynamics and equilibria under incremental horizontal differentiation on the Salop circle. / Vermeulen, B.; Poutré, La, J.A.; Kok, de, A.G.

Eindhoven : Technische Universiteit Eindhoven, 2013. 14 p. (BETA publicatie : working papers; Vol. 436).

Research output: Book/ReportReportAcademic

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Vermeulen B, Poutré, La JA, Kok, de AG. Dynamics and equilibria under incremental horizontal differentiation on the Salop circle. Eindhoven: Technische Universiteit Eindhoven, 2013. 14 p. (BETA publicatie : working papers).