DP4323 Location Choices under Quality Uncertainty
|Author(s):||Charalambos Christou, Nikolaos Vettas|
|Publication Date:||March 2004|
|Keyword(s):||linear city, location, product differentiation, quality uncertainty|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=4323|
We examine a linear city duopoly where firms choose their locations to maximize expected profits, uncertain about how consumers will assess the relative quality of their products. Equilibrium locations depend on the ratio of the expected quality superiority to the strength of horizontal differentiation. When it is small, firms locate at opposite endpoints. As it becomes larger, agglomeration around the centre also emerges as an equilibrium and, eventually, agglomeration becomes the only equilibrium.