MODELS OF SPATIAL COMPETITION A CRITICAL REVIEW.pdf

MODELS OF SPATIAL COMPETITION: A CRITICAL REVIEW Ricardo Biscaia1,2 (ricardo_biscaia@) and Isabel Mota1,3 (imota@fep.up.pt) 1Faculdade de Economia, Universidade do Porto Rua Dr. Roberto Frias, 4200-464 Porto 2CIPES and 3CEF.UP Portugal Abstract This critical review focuses on the development of spatial competition models in which the location choice by firms plays a major role. Therefore, after a brief review of the roots of spatial competition modeling, this paper intends to offer a critical analysis over its recent developments. The starting point is the recognition of the increased importance of this topic through the quantification of the research in this field by using some bibliometric tools. After that, this study proceeds by identifying the main research paths within spatial competition modeling. Specifically, the type of strategy (Bertrand vs. Cournot competition) and its implications over location equilibria are discussed. Additionally, it is presented a comparison of the effects on the location equilibria of the most typical assumptions in literature, that respect to the market (linear vs. circular), production costs, transportation costs, as well as the number of firms. Finally, the type of information (complete vs. incomplete) and its effects over the equilibria are also discussed. Keywords: spatial competition; review; Hotelling; game theory. JEL codes: L13; R10 D82. 1 1. INTRODUCTION Spatial economics is “concerned with the allocation of scarce resources over space and the location of economic activity” (Duranton