Sequential Location among Firms with Foresight
Volume: Volume 8, No. 2
Issue: Autumn 1977
Pages: pp. 378-393
Authors: Edward C. Prescott and Michael Visscher
Title: Sequential Location among Firms with Foresight
Abstract: Existing theory poorly describes the product diversity in a modern market economy largely because such theory is founded on an inadequate concept of equilibrium. Standard analysis regards decision makers as naive in their anticipations of the response of rivals to their decisions and neglects the substantial costs of relocating in the product characteristic space. In this paper, we construct an equilibrium model of firms in which each firm locates in sequence with correct expectations of the way its decisions influence the decisions of firms yet to locate. The nature of the equilibrium is explored in a series of familiar examples taken from the literature.
JEL Classification
Microeconomics Theory of Production (0223)
Economic Geography (7310)
Theory of Regional Economics (9411)