Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/92712
Authors: 
Matsumura, Toshihiro
Matsushima, Noriaki
Year of Publication: 
2009
Series/Report no.: 
ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 761
Abstract: 
We investigate the effects of restricting locations of firms into Hotelling duopoly models. In the standard location-price models, the equilibrium distance between firms is too large from the viewpoint of consumer welfare. Thus, restricting locations of firms and reducing the distance between firms improve consumer welfare, through lower prices and smaller transportation costs for consumers. We introduce strategic reward contracts into the location-price models. We find that in contrast to the above existing result, restriction of the locations of firms reduces consumer welfare. Restricting locations of the firms reduces transportation costs but increases the prices through the change of strategic commitments by the firms, and it yields a counterintuitive result.
Subjects: 
product selection
delegation
Hotelling
locational restriction
JEL: 
R52
R32
L13
Document Type: 
Working Paper

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