A NUMERICAL APPROACH TO DERIVING LONG-RUN EQUILIBRIUM SOLUTIONS IN SPATIAL POSITIONING MODELS

Choi, DeSarbo and Harker (1990) have recently proposed a numerical methodology for optimal product positioning and pricing under the assumption that the incumbents react only with price changes in the short run. The current note extends this methodology to include incumbents' long-run strategy of competitive product repositioning, in addition to price reactions. This note also introduces the notion of product relocation cost to the equilibrium analysis, and applies the concept of (full and partial) adjustment processes toward an equilibrium to model various strategic behavior of firms. This methodology is illustrated using an existing set of data collected for a major telecommunication equipment manufacturer.