The Implications of Quantity-Discounted Transportation Rates on the Optimum Location Decisions of Free Entry Oligopoly
This paper examines the theoretical implication of quantity-discounted transportation rates on the impact of a change market demand on the optimum location decisions of undifferentiated oligopolistic firms within the Weber-Moses triangle. Assume that transportation rates are a function of quantity shipped and distance traveled. We show that the optimum location is independent of a change in market demand if the market demand function is linear. This is consistent with the well-known Mai-Hwang results with constant transportation rates. It indicates that Mai and Hwang proposition is more general than it appears. We further show that an increase in market demand may move the optimum location closer to (away from) the output market when the market demand function is concave (convex). These results are significantly different from the well-known Mai-Hwang results with constant transportation rates. It indicates that the quantity discounted transportation rates have an important influence on the location decisions of undifferentiated oligopolistic firms.
Undifferentiated Oligopoly, Plant Location, Quantity Discounted Transportation Rates, Weber-Moses Triangular Location Model
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