Home

Price and variety in the spokes model

Yongmin Chen; Michael H. Riordan

Title:
Price and variety in the spokes model
Author(s):
Chen, Yongmin
Riordan, Michael H.
Date:
Type:
Working papers
Department:
Economics
Permanent URL:
Series:
Department of Economics Discussion Papers
Part Number:
0405-20
Publisher:
Department of Economics, Columbia University
Publisher Location:
New York
Abstract:
The spokes model of nonlocalized spatial competition provides a new analytical tool for differentiated oligopoly and a representation of spatial monopolistic competition. At the unique symmetric equilibrium of the spokes model, an increase in the number of firms leads to lower prices when consumers have relatively high product valuations, but, surprisingly, to higher prices for lower consumer valuations. New entry alters consumer and social welfare through price, market expansion, and matching effects. With free entry, there can be multiple equilibria in the number of firms, the market may provide too many or too few varieties from a social welfare perspective, and the equilibrium price remains above marginal cost even when the number of firms is arbitrarily large.
Subject(s):
Economics
Item views:
215
Metadata:
text | xml

In Partnership with the Center for Digital Research and Scholarship at Columbia University Libraries/Information Services | Terms of Use