ON A LOCATION THEORY UNDER DUOPOLY

Using a linear space model, this paper presents a conjectural variations approach to examine the exclusion theorem as well as the effect of a demand shift on optimum locations of firms. We find that in the case of duopoly, duopolistic interactions between firms significantly alter the location configuration, and the optimum intermediate location is possible. In addition, we also show that with a linear demand, each firm's optimum location is independent of a demand shift only if his own and the rival's production functions are constant returns to scale. These results are quite different from the conventional wisdom.