Spatial Competition with Price-Taking Firms.

The authors consider a price-taking equilibrium in the spatial setting. A (unique) pricing equilibrium is shown to exist for any set of firm locations. This equilibrium is then used to examine locational incentives in the two-stage process in which firms first choose locations anticipating the subsequent price-taking outcome. The result is spatial agglomeration if demand is inelastic and there are only two firms. Agglomeration does not occur if demand is too elastic or if there are more than two firms. Copyright 1994 by The London School of Economics and Political Science.