There is no stable location equilibrium in this game

Reference no: EM131047804

wo profit-maximizing ice-cream vendors are located at opposite ends of a boardwalk along a 5-mile stretch of beach. Vendors A and B initially sell ice-cream cones for $3.00. There are 500 consumers uniformly distributed along the boardwalk. Suppose that a consumer incurs $0.05 per 1/2 mile in travel costs and that the vendor's marginal cost is $1.00. Franchise agreements prohibit either vendor from relocating, but there is nothing that prevents them from changing its price. Suppose that franchise agreements prohibit either vendor from changing its price, but there is nothing that prevents them from changing location.

a. Each vendor will locate at mile 0.

b. Each vendor will locate at mile 5.

c. There is no stable location equilibrium in this game.

Each vendor will have an ongoing incentive to relocate to increase market share. d. Each vendor will relocate to mile 2.5. e. The east-side stand will relocate to mile 1 2/3 and the west-side stand will relocate to mile 3 1/3.

Reference no: EM131047804

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