• Management Science and Financial Engineering
• /
• v.13 no.2
• /
• pp.99-116
• /
• 2007

This paper considers the value of location in a linear city model and examines the product differentiation equilibrium of duopoly providing different benefits to consumers. We show that if the value of location is small, symmetric location equilibrium occurs where two firms follow the maximal differentiation principle. However, as the value of location increases, asymmetric location equilibrium occurs where the low-value-location firm moves to the high-value-location firm and thus adjusted maximal differentiation principle holds. We also investigate two different price leadership model and demonstrate the relationship between the value of location and the role of price leadership. In particular, we show that when the location value is high, the price leadership by high-value-location firm will appear as a unique equilibrium.