Publication: On the Existence and Computation of Nash Equilibrium in Network Competitive Location Under Delivered Pricing and Price Sensitive Demand
Authors
Pelegrín Pelegrín, Blas ; Fernández Hernández, Pascual ; García Pérez, María Dolores
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Publisher
SPRINGER
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DOI
https://doi.org/10.1007/s11067-023-09598-9
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info:eu-repo/semantics/article
Description
©2023. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
This document is the Accepted, version of a Published Work that appeared in final form in Networks and Spatial Economics. To access the final edited and published work see https://doi.org/10.1007/s11067-023-09598-9
Abstract
We address the location-price decision problem for firms that offer the same type of product and compete on delivered pricing. If firms set equilibrium prices at demand points, the problem can be seen as a location game for which the Nash equilibrium (NE) is used as solution concept. For spatially separated markets, with inelastic demand, there exists a NE and it can be found by social cost minimization, as happens in network and planar location. However, with price sensitive demand, the existence of a NE has not been proven yet and socially optimal locations may not be a NE. In this paper we show that a NE can be found in discrete and network location when demand is price sensitive. A Mixed Integer Linear Programming formulation is implemented in the best response procedure which allow to find a NE for a variety of demand functions. An empirical study with data of Spanish municipalities is performed in which the procedure is applied to 200 large size test problems with linear, quadratic, exponential and hyperbolic demand functions.
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Citation
Networks and Spatial Economics 23 (2023), 825-843
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