Tuesday, September 22, 2015

Three Equivalent Salop Models and their Normative Representative Consumer

Steffen Hoernig describes Three Equivalent Salop Models and their Normative Representative Consumer.

ABSTRACT: We show that three location models on the Salop circle, involving linear or quadratic transport cost, and asymmetric locations or fixed benefits, are equivalent: they lead to the same demand functions and consumer surplus. The only exception is the case of asymmetric lo- cations with an even number of firms, which has one less degree of freedom. These models are also fully equivalent to a normative rep- resentative consumer whose indirect utility is given by the standard Salop consumer surplus. This result provides a further unification of location and representative consumer models. JEL codes: D11, D43

https://lawprofessors.typepad.com/antitrustprof_blog/2015/09/three-equivalent-salop-models-and-their-normative-representative-consumer.html

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