JOURNAL OF SHANDONG UNIVERSITY(NATURAL SCIENCE) ›› 2017, Vol. 52 ›› Issue (6): 1-9.doi: 10.6040/j.issn.1671-9352.0.2017.045

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Research on totally sequential decision-model of two firms location and pricing based on Hotelling model

XU Bing1,2, ZHANG Yang1   

  1. 1. School of Management, Nanchang University, Nanchang 330031, Jiangxi, China;
    2. Center for Central China Economic Society Development Research, Nanchang University, Nanchang 330031, Jiangxi, China
  • Received:2017-02-17 Online:2017-06-20 Published:2017-06-21

Abstract: It widely exists that firms enter the modern market sequentially. Based on Hotelling model, one decision-model of totally sequential entry with quadratic transportation cost was built to characterize the horizontal competition of two firms in a linear market that the leader makes price-decision after location-decision, and then the follower makes price-decision after location-decision. The analysis of two firms game shows that the follower has the advantage and gains more profits as a late-mover. The leader will locate at the end of market and chooses low-price strategy, while the follower will locate at the center of market and choose high-price strategy. The comparison of the decision-model of totally sequential entry, the game model of two firms making simultaneous decisions of location and price one after another, the game model that two firms simultaneously make location-decisions before they make price-decisions one after another, the game model that two firms make simultaneously price-decisions after their location-decisions were made simultaneously. It shows that the decisions of the first model and the second model are same, in which the prices and profits of two firms are lower than the following models. All four models cant realize the welfare-maximization of society. It needs “the visible hand” of government to regulate the behavior of firms.

Key words: game model, competition of location and pricing, welfare-maximization of society, totally sequential decision

CLC Number: 

  • F270
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