Full or partial market coverage? A note on spatial competition with elastic demand

In this paper, a spatial model is used to endogenously determine product locations and prices when consumers have an elastic demand with a finite reservation price. I show under which condition a two-stage Bertrand-Nash equilibrium yields maximal product differentiation with full market covering. Additionally, this paper highlights the effects of a change in the reservation price and in the utility loss rate on the equilibrium values of the model. The ambiguous effect of a change in the utility loss rate on prices constitutes a rather puzzling result. Copyright © 1999 John Wiley & Sons, Ltd.