Geography Reference
In-Depth Information
U
u
(
l, l*
)
l
l
*
l
Figure 3.18
Consumer utility function in a Salop circular model
consumed and the consumer's ideal brand characteristics at
l
*, as well as
on the preference (transport) costs
t
per unit distance.
Now if we apply this Salop utility logic from that of a single product to
multiple products, that is, from a single firm to multiple firms, by follow-
ing the logic of the Hotelling model and applying it to the utility structure
of Figure 3.18, it becomes immediately clear that in order for a firm to
maximize its market area, it will want to locate as far away as possible
from its competitor firms. As such, if there are
n
brands, and
L
51, then
the distance between each brand location is equal and is given as 1/
n
, as
depicted in the four firm example of Figure 3.17.
In the Salop model in which there are multiple firms we can imagine
two broad alternative scenarios. The first scenario is where each firm has
complete monopoly power over its own brand, while the second scenario
is where the firms must compete, at least partially, between brands. The
first case is depicted in Figure 3.19 and the second case in Figure 3.20.
In the case where all firms have complete monopoly power over their
own brands then in spatial terms this implies that each firm has control
over its own monopoly region, the length of which is 2
d
m
in Figure 3.19.
In this case, all consumers whose preferences are located near to the brand
characteristics of the firm will buy from that firm, and this will be true for
