Can Price Competition Dominate Market Segmentation?

Abstract

This note analyzes duopoly competition in a two stage (location-price) game, while allowing each f irm to establish a couple of outlets. Both the circle and the line mo del of spatial competition are considered. The main result is clear-c ut: in equilibrium neither firm will take up the opportunity of openi ng two stores. This is a warning that market segmentation, i.e., comp etition from multiple outlets, might not be attractive at all, becaus e it entails more intense price competition. Copyright 1988 by Blackwell Publishing Ltd.

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