March 2000
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54 Reads
Chapter 2 deals with a linear city model la Hotelling where the two firms share linear transport costs with their customers. Mill pricing and uniform delivery pricing are special limiting cases. We characterize the conditions for the existence of a pure strategy equilibrium in the two-stage location-price game. These enable us to identify the causes for non-existence in the two limiting cases. We solve for the equilibrium of a location game between the duopolists with an exogenously given price. When the two firms are constrained to locate at the same central spot, we show the nonexistence of pure strategy equilibria, conjecture the existence of mixed strategy equilibria, and show that any such possible equilibria will always yield positive expected profits.