Firm Mobility and Location Equilibrium

Two types of location equilibria are compared. The first one is that of a simultaneous price and location game, the second is that of a two-stage location-then-price game. It is suggested that equilibrium locations are further apart under the second and profits are higher, since firms internalize the harmful price competition effect of moving close to each other. The paper introduces a nonpurchase option into the logit model of spatial competition and the sensitivity of the equilibrium is analyzed.