Analysis of Spatial Competition with Discrete Choice Models

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The study of the location of firms has been influenced recently by new developments in two different fields. In spatial economics, Hotelling-type spatial competition models have been developed to describe how firms determine the price and location of sites through multistage games in which they do not cooperate with one another. The parallel development of discrete-choice models has shed new light on the ways in which consumer and firm behavior are based on the concept of random utility. This research project will synthesize insights from these two theoretical traditions and will develop a new discrete-choice model of firm location. The model will be developed by systematically examining the impacts of a number of factors on probabilistic preference models of firm locational behavior. Inclusion of these factors will enable the model to more realistically reflect the actual conditions under which firms operate. The final stage of analysis will consist of development of a simulation program that would enable users to readily examine the impacts of different conditions on the locational behavior of firms. This research will bring together two significant lines of inquiry in the theoretical examination of the geographic behavior of economic units and will enhance our understanding of the processes and criteria that lead firms to locate in some places and not in others. This work will also provide an improved basis by which the actual behavior of firms may be empirically analyzed.