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Noncooperative Bargaining and Spatial Competition
Helmut Bester
Abstract
The paper presents a bargaining approach to spatial competition. Sellers compete by choosing locations in a market region. Consumers face a cost to moving from one place to another. The price of the good is determined as the perfect equilibrium of a bargaining game between seller and buyer. In this game, the consumer has the outside option to move to another seller so that prices at all stores are interdependent. Existence of a location-price equilibrium is established. The outcome approaches the perfectly competitive one if the consumer's costs of travelling become negligible or if the number of sellers tends to infinity.
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