Urban amenities are viewed as a surrogate for all kinds of outside opportunities that consumers encounter within urban areas. Using the Hotelling model, the paper studies the impact of these amenities on independent location and pricing decisions of duopolists.

Consumers patronize the firm where the amount of amenities is larger, ceteris paribus. If this demand externality is strong at the midpoint then minimum differentiation occurs without moderation of price competition, in contrast to mainstream results in the literature.

For intermediate values of the ration of transportation cost to spatial concentration of amenities, firms tacitly play an asymmetric equilibrium with one firm near (or at) the midpoint and its rival at a more suburban location. This causes intra-urban inequalities since some consumers are induced to patronize the decentralized marketplace where they encounter less urban life opportunities.

The research shows that the firms tendency to differentiate their locations depends strongly on the urban structure in which they operate. It depends on existing spatial agglomeration of various economic, social and cultural opportunities.

University of Lisbon
Didier Baudewyns

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01/04/2006

Didier Baudewyns

research

Urban Policy > Transport and infrastructure > Services & amenities

Amenities