Location an entry deterrence

Question 1

What are Hotelling framework assumptions?

Answer 1

• Market length 1 with uniformally distributed consumers
• Each consumer demands 1 unit of the good
• A and B set price of p>0 (exogenous)
• Firms have marginal costs of c < p and no fixed costs
• P - c = 1

Question 2

Why do consumers visit closest store under hotelling?

Answer 2

Prices are equal and products are equally as good

Question 3

Why do firms differentiate when entry is sequential?

Answer 3

• Incentive to maximise market share

- Incentive to restrict entry