We study product differentiation equilibria and dynamics on the Salop circle under bounded rationality. Due to bounded rationality, firms tend to agglomerate in pairs. Upon adding a second tier of component suppliers, downstream assemblers may escape pairwise horizontal agglomeration. Moreover, we find a persistent propensity to vertically agglomerate near suppliers as well as ubiquitous dynamic equilibria. Conclusively, to understand product differentiation equilibria and dynamics, products and their supply chains need to be disaggregated.
|Title of host publication||Proceedings of the 18th Asia Pacific Symposium on Intelligent and Evolutionary Systems|
|Editors||H. Handa, H. Ishibuchi, Y.-S. Ong, K.-C. Tan|
|Place of Publication||Berlin|
|Publication status||Published - 2015|
|Name||Proceedings in Adaptation, Learning and Optimization|