Friday, May 24, 2013
Posted by D. Daniel Sokol
Ricardo Biscaia (CIPES - Centro de Investigacao de Politicas de Ensino Superior), Paula Sarmento (FEP - Faculdade de Economia do Porto) discuss Cost inefficiency and Optimal Market Structure in Spatial Cournot Discrimination.
ABSTRACT: This paper analyzes the location patterns of firms in Cournot spatial discrimination setting. The innovation step is that firms are allowed to have different marginal costs of the production. When analyzing the two-stage location-quantity game, we conclude that firms choose the central agglomeration outcome whatever the marginal cost difference between them. When maximizing social welfare, the social planner chooses the central location for both firms as well if the marginal cost differences are not too big. When allowed to decide if the inefficient firm should be in the market or not, the social planner removes the inefficient firm from the market if its cost is too high.