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International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Competition By Choice
Marc Dudey
1988-327  (July 1988)

Abstract:  This paper relates firm location choice and consumer search. Firms that cluster together attract consumers by facilitating price comparison, but clustering increases the intensity of local competition. I construct a simple model which shows that firms may choose head-on competition by locating together. In special cases, this can be the unique equilibrium outcome. I also use the model to show that price setting firms may earn more in equilibrium than quantity setting firms.

Full paper(271 KB PDF)

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