Computing Equilibria in Hotelling's Model of Spatial Competition

Sammanfattning

Hotelling’s classic model of spatial competition, although simple in its formulation, has proven difficult to analyze because it often lacks pure pricing equilibria. In this thesis, computational methods were used to find subgame perfect equilibria for the model with convex transport cost functions of the form $d^\alpha$ for $\alpha$ in $[1,2]$. As the function goes from linear to quadratic, the found equilibrium locations move first inward and then outward to the edges. At the equilibrium locations, mixed pricing is only used for transport cost functions close to linear. The equilibria are close to socially optimal, except for transport costs close to quadratic. The results are consistent with previous work, and provide novel insights for cases which are analytically intractable.