DO FIRMS COMPETE WHEN DEMAND IS LOW? A Model of Spatial Differentiation

Alessandra Chirco, Luca Lambertini
In a spatial competition model, changes in firms' competitive behaviour may occur when the hypothesis that individual gross surplus is positive in equilibrium is relaxed. We prove that there exists a region of the relevant parameter where firms' behaviour mimics collusion, while in another range they find it optimal to isolate from each other and behave monopolistically. Acknowledgements We would like to thank Corrado Benassi, Guido Candela and Vincenzo Denicolò for insightful comments and
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