Hotelling’s Beach with Linear and Quadratic Transportation Costs: Existence of Pure Strategy Equilibria

Egli, Alain (May 2005). Hotelling’s Beach with Linear and Quadratic Transportation Costs: Existence of Pure Strategy Equilibria (Discussion Papers 05-09). Bern: Department of Economics

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In Hotelling type models consumers have the same transportation cost function. We deviate from this assumption and introduce two consumer types. Some consumers have linear transportation costs, while the others have quadratic transportation costs. If at most half the
consumers have linear transportation costs, a subgame perfect equilibrium in pure strategies exists for all symmetric locations. Furthermore, no general principle of differentiation holds. With two consumer types, the equilibrium pattern ranges from maximum to intermediate
differentiation. The degree of product differentiation depends on the fraction of consumer types.

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