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By introducing rent cost into Hotelling model, this paper studies duopoly's location-then-price game problem. The conclusions of this paper differ from that of Hotelling model's ‘minimum differentiation’ location. When the ratio of rent cost rate and transportation cost rate meets certain condition, we find that in equilibrium: (i) firms locate in two ends of the market in the condition of linear rent cost function (i.e. ‘maximum differentiation’ location); (ii) firm's location only depends on the ratio of rent cost rate and transportation cost rate in the condition of quadratic rent cost function.
Date of Conference: 4-6 Dec. 2010