Study On Two-stage Location-price Competition In Circular Market

With the rapid development of information and technology, there are more and more homogeneous products. Under the circumstances, product differentiation seems to be one important way for enterprises to gain market power. In the theory of horizontal product differentiation, Hotelling model proposes that the difference in linear space can be used for representing the difference of the product. Salop circular city model assumes that manufacturers will be equally spaced and studies on the competition equilibrium state of the number and price decision. This thesis studies manufacturers' two-stage location-price competition and differentiation strategy in Circular Market which is not been studied in Salop model. Furthermore, we consider the effect of quadratic transport cost and network externality on the Circular Market competition. The studies are as follows:(1) First, this thesis analyzes Circular Market competition characteristics, and finds the phenomenon of 'Manufacturer's profit function does not include its own location decision'. This phenomenon comes from Circular Market symmetry and can be able to provide some explanations of the development of Circular Market competition. On this basis, the thesis proposes a reasonable objective function ' Maximum relative profit ' to model two-stage location-price competition in Circular Market. This study shows that the location decision is related to the parity of the manufacturers' number in the Circular Market: when the number is an odd, each manufacturer will choose an 'equal distance' location; when the number is an even, the manufacturers whose numbers are all odd(even) will choose an 'equal distance' location.(2) Then, this thesis analyzes Circular Market competition characteristics with quadratic transport cost and find there is no equilibrium solution. Then we study the Circular Market competition with the aim of ' Maximum relative profit '. The study shows that there is unique location equilibrium solution, i.e. 'equal distance' location, and the manufacturer's average spacing puts greater and more obvious impact on the equilibrium price. The Circular Market competition model with quadratic transport cost is more proper than the model with linear transport cost.(3) Last, this thesis analyzes Circular Market competition characteristics with network externality and finds the similar phenomenon that manufacturer's profit function does not include its own location decision. Then, with the aim of 'Maximum relative profit', we study the Circular Market competition with network externality. The study shows that the more important intensity of positive network externality relative to transport cost, the lower the equilibrium price; the more important intensity of negative network externality relative to transport cost, the higher the equilibrium price.This thesis explains the state of Circular Market competition development, and builds a new model of two-stage location-price competition in Circular Market and its extended models. It promotes a new direction for the researchers and some decision-making basis for the manufacturers.