Robust equilibria in location games
Journal
European Journal of Operational Research
ISSN
0377-2217
Type
journal article
Date Issued
2015-01-16
Author(s)
Röhl, Nils
Abstract
In the framework of spatial competition, two or more players strategically choose a location in order to attract consumers. It is assumed standardly that consumers with the same favorite location fully agree on the ranking of all possible locations. To investigate the necessity of this questionable and restrictive assumption, we model heterogeneity in consumers' distance perceptions by individual edge lengths of a given graph. A profile of location choices is called a "robust equilibrium" if it is a Nash equilibrium in several games which differ only by the consumers' perceptions of distances. For a finite number of players and any distribution of consumers, we provide a complete characterization of robust equilibria and derive structural conditions for their existence. Furthermore, we discuss whether the classical observations of minimal differentiation and inefficiency are robust phenomena. Thereby, we find strong support for an old conjecture that in equilibrium firms form local clusters.
Language
English
Keywords
Location
Spatial competition
Game theory
Networks
Minimal differentiation
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Elsevier
Publisher place
Amsterdam
Volume
240
Number
2
Start page
505
End page
517
Pages
13
Subject(s)
Eprints ID
246693