ENDOGENOUS FIRM LOCATION WITH A DECREASING DENSITY OF CONSUMERS

Abstract

This note applies the Hotelling line model with a non-uniform distribution of consumers. Instead, a linear decreasing density is used to represent declining population density as distance from a metropolitan area increases along a transportation corridor. Entry is sequential, and the number of firms is assumed to be endogenous after the initial firm is located, leading entrants to consider the possibility of subsequent entry. Firms entering the market exhibit neither maximum nor minimum differentiation. Earlier entrants generally locate closer to the population center, with the possible exception of the equilibrium location nearest to the densest point on the line. Product differentiation increases as firms are located farther from the population center.

Data:
Received: 22 Sep 2019
Revised: 10 Nov 2019
Accepted: 6 Dec 2019
Published: 20 Dec 2019