Product differentiation under bounded rationality

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

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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.
Original languageEnglish
Title of host publicationProceedings of the 18th Asia Pacific Symposium on Intelligent and Evolutionary Systems
EditorsH. Handa, H. Ishibuchi, Y.-S. Ong, K.-C. Tan
Place of PublicationBerlin
Publication statusPublished - 2015

Publication series

NameProceedings in Adaptation, Learning and Optimization
ISSN (Print)2363-6084


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