Working Paper

Competition by choice


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.

Keywords: Competition; Consumer behavior; Business enterprises;

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File(s): File format is application/pdf http://www.federalreserve.gov/pubs/ifdp/1988/327/ifdp327.pdf

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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 1988

Number: 327