Get 20M+ Full-Text Papers For Less Than $1.50/day. Subscribe now for You or Your Team.

Learn More →

A spatial economic model under network externalities: symmetric equilibrium and efficiency

A spatial economic model under network externalities: symmetric equilibrium and efficiency This paper studies a spatial economic model under network externalities, assuming a quadratic transport cost function. A classical circular model is applied where the consumers, each with a fixed demand, are uniformly distributed along the circumference of a circle. Assuming symmetric locations of profit-maximizing suppliers, a unique symmetric price equilibrium is derived under both positive and negative network externalities. The price equilibrium is obtained using the tridiagonality property of the demand system. The equilibrium price is higher with negative network externalities than the price without externalities whereas the converse is true with positive network externalities. The efficiency loss of the free entry equilibrium is studied in terms of the price of anarchy. Numerical experiments suggest that the price of anarchy is robust to weak externalities but can be significant under strong network externalities. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Operational Research Springer Journals

A spatial economic model under network externalities: symmetric equilibrium and efficiency

Operational Research , Volume 14 (1) – Jun 6, 2013

Loading next page...
 
/lp/springer-journals/a-spatial-economic-model-under-network-externalities-symmetric-dm8p2RYqWs

References (23)

Publisher
Springer Journals
Copyright
Copyright © 2013 by Springer-Verlag Berlin Heidelberg
Subject
Economics / Management Science; Operations Research/Decision Theory; Operations Research, Management Science; Computational Intelligence
ISSN
1109-2858
eISSN
1866-1505
DOI
10.1007/s12351-013-0136-3
Publisher site
See Article on Publisher Site

Abstract

This paper studies a spatial economic model under network externalities, assuming a quadratic transport cost function. A classical circular model is applied where the consumers, each with a fixed demand, are uniformly distributed along the circumference of a circle. Assuming symmetric locations of profit-maximizing suppliers, a unique symmetric price equilibrium is derived under both positive and negative network externalities. The price equilibrium is obtained using the tridiagonality property of the demand system. The equilibrium price is higher with negative network externalities than the price without externalities whereas the converse is true with positive network externalities. The efficiency loss of the free entry equilibrium is studied in terms of the price of anarchy. Numerical experiments suggest that the price of anarchy is robust to weak externalities but can be significant under strong network externalities.

Journal

Operational ResearchSpringer Journals

Published: Jun 6, 2013

There are no references for this article.