Product differentiation and spatial agglomeration in a unidirectional Cournot model

Abstract

This paper introduces differentiated products in a spatial unidirectional Cournot model with elastic demand. We analyze a location-quantity game and show that agglomeration or dispersed locations may arise, depending on parameter combinations. The degree of differentiation plays an important role in location choice. The higher the degree of differentiation between the products the more likely is agglomeration. Only cases with a low degree of differentiation and high transportation costs lead to the absence of agglomeration.