Spatial Competition with Elastic Demand : Some Results

In this paper, a spatial (circular) model is used to endogenously determine product locations and prices when consumers have an elastic (linear) demand with a finite reservation price. I show that a symmetric two-stage Bertrand-Nash equilibrium requires maximal product differentiation. Additionally, the paper investigates the relationship between reservation price and market coverage. Finally, the paper highlights the effects of changes in the reservation price and the 'freight' rate on the equilibrium values of the model.