Winners and Losers in Spatial Duopoly Markets: The Relevance of a Value Transfer Approach

Abstract

The effect of economic behaviour of different actors on the size of a market area is a classical subject of study in regional economics and over the years many studies have been published on this subject. Regional market differences are not only relevant in (location-) allocation theory, but they may also offer intriguing research opportunities for value transfer analysis. In our study a fresh look will be taken at the key forces determining the size of a market area and its implications and possibilities for value transfer. We will address in particular the combination of price competition (modelled by using a modified Bertrand duopoly model) and transport costs. In the paper, Hotelling's duopolistic allocation model will act as the basis for further theorizing. The reasons for the emergence of regional duopoly markets will be investigated by using the willingness-to-pay of households. A modified duopolistic model to analyze also the effects of choice behaviour under conditions of congestion will be placed in the context of earlier research on these types of models, while its implications for value transfer will be traced. Throughout the paper, a strictly formal approach will be adopted in order to identify the general conditions under which value transfer is feasible.