A Linear City Model with Asymmetric Consumer Distribution Academic Article uri icon

abstract

  • The article analyzes a linear-city model where the consumer distribution can be asymmetric, which is important because in real markets this distribution is often asymmetric. The model yields equilibrium price differences, even though the firms’ costs are equal and their locations are symmetric (at the two endpoints of the city). The equilibrium price difference is proportional to the transportation cost parameter and does not depend on the good's cost. The firms' markups are also proportional to the transportation cost. The two firms’ prices will be equal in equilibrium if and only if half of the consumers are located to the left of the city’s midpoint, even if other characteristics of the consumer distribution are highly asymmetric. An extension analyzes what happens when the firms have different costs and how the two sources of asymmetry – the consumer distribution and the cost per unit – interact together. The model can be useful as a tool for further development by other researchers interested in applying this simple yet flexible framework for the analysis of various topics.

publication date

  • January 1, 2015