COURNOT COMPETITION YIELDS SPATIAL DISPERSION

Abstract

Introduction. A lot of works suggests that Cournot oligopolists competing in a spatial model, with a uniform distribution of consumers, agglomerate in the center of the market. In this paper revisited some results from [1]. In the paper [1] showed that Cournot-type oligopolists which discriminate over space will tend to agglomerate. The paper [2] considers the spatial model used by [2] to study firms’ decisions on locations without restricting the consumers’ reservation price. Purpose. This paper extend the analysis of the standard model of spatial discrimination with Cournot competition along the linear city for a high enough transport tariff. Results. It was obtained that for a high enough transport tariff the firms have a decision which lies on the boundary of the feasible locations region. We show that a change in the central agglomeration strategy to the dispersion strategy occurs at the point of transcritical bifurcation. The different effects come into play. Before bifurcation point the effect of minimizing transport costs is dominate. Firms choose the central agglomeration strategy to minimize a total distance of transportation. The growth of the transport tariff leads to a decrease in the total profit. In the bifurcation point begins to dominate the effect of market segmentation. Firms choose a dispersed strategy to monopolize adjacent markets. The growth of the transport tariff leads to an increase in total profits. The growth of total profit with growth of the transport tariff is due to the fact that when dispersion strategy, the firms supply more to adjoining markets and less to distant markets. In the case of multiple equilibria is shown that exactly the stable solution provides a large profit. The conditions for full coverage of the markets for both strategies are defined. Conclusions. In this paper we show that firms under Cournot competition will tend to dispersion. Thus, the article extends the analysis of the standard Hotelling spatial competition model. The results allow a deeper look at the causes of agglomeration and dispersion of firms. The analysis of equilibrium stability showed that the transport tariff is a bifurcation parameter for firms when choosing a spatial strategy.