STRATEGIC INTERACTION IN A SPATIAL DUOPOLY UNDER TRANSPORT MONOPOLY

Abstract

Introduction. For many years economists have been discussing the benefits of price and quantity competition in the oligopoly market. To date, it can be argued that there is no type of competition that has an absolute advantage. Depending on the characteristics of the markets being modeled, one or another type of competition will be optimal. The purpose of this paper is to analyze the spatial duopoly model [8] under conditions of product differentiation, asymmetric markets and transport monopoly. In order to maximize profits, firms first select a location and then the type of competition – Cournot or Bertrand. Results. It is obtained that the transport monopoly discriminates against firms by their mutual location. It is proved that in the case of agglomeration of firms the transport tariff is invariant with respect to market asymmetry, product differentiation and type of competition. With the dispersion of firms, the transport tariff is invariant only with respect to the asymmetry of markets. It was found that the optimal type of competition for firms is determined by the type of product differentiation, and consumer surpluses and social welfare are always higher in Bertrand competition. With substitute goods firms choose quantitative competition, with complementary goods they choose price competition. Conclusions. The paper identifies the appropriate states of equilibrium and comparative analysis of locations, profits, consumer surpluses and social welfare. It is proved that with a high enough level of asymmetry, agglomeration in a large market is the only Nash equilibrium in pure strategies, regardless of the type of competition.