Spatial Competition in a Circular Market with Delivery Direction Choice

Abstract

This paper employs two concepts which are endogenous direction choices on product delivery and the first-entrant-take-all rule to capture the major characteristics on some utility industries, such as the natural gas or electric industries. It is shown that there are two equilibrium outcomes in a circular market. One outcome is that the two firms are located back-to-back at one point and transport their goods in opposite directions. The second outcome is that both firms are located equidistantly from each other and deliver the products in the same direction. These results are striking in that agglomeration location is one of the equilibrium patterns.