A Note on the Excess Entry Theorem in Spatial Models with Elastic Demand

Abstract

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Price‐sensitive demand and market entry

“…The properties of the equilibrium price differ from the standard model with inelastic demand (see Tirole ) as well as from the setup where elastic demand depends only on the price but not on transport costs (see Gu and Wenzel ). Whereas in those cases, the price unambiguously increases in the transport‐cost parameter τ , here the price may increase or decrease in τ .…”

“…Matsumura () shows that insufficient entry can arise if the integer problem is taken into account. Moreover, Gu and Wenzel (, ) show that the excess entry result may not hold in a framework where customer demand is price‐sensitive and transport costs come as a fixed cost to customers, independent of the quantity that is purchased . Finally, delivered‐price competition is considered in Matsumura and Okamura () in a setting with a linear demand function.…”

Location choices with a non‐linear demand function

“…Some works on spatial competition adopt the general demand functions that include the non‐linear demand used here as a special case (Gu and Wenzel ; Kitahara and Matsumura ). However, they consider shopping models and not shipping models.…”

Mixed Duopoly, Product Differentiation and Competition*

“…4 4 We adopt the constant elasticity demand function discussed by Anderson and de Palma (2000) and Gu and Wenzel (2009) in a spatial context. …”