Geography Reference
In-Depth Information
F
1
F
4
F
2
F
3
Figure 3.17
Salop circular model
can be further developed by analysing what is known as the Salop (1979)
model of spatial competition. Whereas the Hotelling model essentially
deals with the case of two firms in a finite geographical or product space,
the Salop model applies to the case of three or more firms set in a continu-
ous (non-finite) geographical space or in a continuous (non-finite) product
characteristics space. Here we focus initially on the product space analogy,
and then we will return to the insights that this approach provides for the
relationships between geographical space and product space. The explana-
tion here closely follows the excellent Carlton and Perloff (2005) simpli-
fied analysis of part of the broader Salop (1979) model, and the reader is
referred to Carlton and Perloff (2006) for further details along with the
original Salop (1979) model paper.
In order to understand the Salop model we begin by constructing a
circular space with no finite borders, and allow four firms
F
1
,
F
2
,
F
3
, and
F
4
to be located on this geographical and product characteristic space.
The Salop model assumes a circular model space of distance
L
and this
is depicted in Figure 3.17, in which there is an equal distribution of con-
sumers along a circular market. As with the Hotelling model we assume
that there is perfectly inelastic demand on the part of all consumers,
