Three Equivalent Salop Models and their Normative Representative Consumer.- Steffen Hoernig

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  • Last update: 09 July 2015
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  • Author: Steffen Hoernig

We show that three location models on the Salop circle, involving
linear or quadratic transport cost, and asymmetric locations or fixed
benefits, are equivalent: they lead to the same demand functions and
consumer surplus. The only exception is the case of asymmetric lo-
cations with an even number of firms, which has one less degree of
freedom. These models are also fully equivalent to a normative rep-
resentative consumer whose indirect utility is given by the standard
Salop consumer surplus. This result provides a further unification of
location and representative consumer models.

Keywords: Salop model, representative consumer