Spatial Competition and Subcontracting with Price Leadership

[[abstract]]This paper develops a variant of Hotelling's (1929) model involving subcontracting production as well as price leadership to explore the possibility of the validity of the principle of Minimum Differentiation. It shows that the equilibrium locations are determined by two controversial forces: a centripetal force that is generated from subcontracting production and price leadership for saving transportation costs of the subcontracting input, and a conventional centrifugal force that arises from price competition for reducing market competition. It also demonstrates that when the transport rate of the subcontracted input is sufficiently large relative to that of the final product, the principle of Minimum Differentiation arises, but the principle of Maximum Differentiation occurs if the condition is reversed. Furthermore, the two firms will locate together at the endpoints of the line market where the rival of the Stackelberg leader locates instead of agglomerating at the center of the line market.[[sponsorship]]中華大學建築與都市計劃學系[[conferencetype]]國內[[conferencedate]]20031220~20031220[[booktype]]紙本[[iscallforpapers]]Y[[conferencelocation]]新北市, 臺