??
Assumingallconsumersareidentical(exceptforlocation)andconsumersare
evenlydispersedalongtheline,boththefirmsandconsumerrespondto
changesindemandandtheeconomicenvironment.Twofirmsaresellingand
producingthesameproducts.Consumershaveinelasticdemandelasticity
whichmeanstheconsumerswillnotcareaboutthepriceofproductsandbuy
oneunitofproduct.Firmsdonotexercisevariationsinproductcharacteristics;
firmscompeteandpricetheirproductsinonlyonedimension,geographic
location.Therefore,traditionalusageofthismodelshouldbeusedfor
consumerswhoperceiveproductstobeperfectsubstitutesorasafoundation
formodernlocationmodels.
Consumersareuniformlydistributedontheinterval[0,1]andaconsumerwith
identityx[0,1]hasutilityu=r?τx?pifhebuysfromfirm1andu=r?
1
τ(1?x)?pτifhebuysfromfirm2,whereristhereservationprice,τisthe
1
unitcostoftransportation.
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