UC Irvine Institute of Transportation Studies

I characterize the pure strategy Nash-Bertrand equilibrium in a setting where two firms at different locations supply a homogenous good at constant marginal production cost. A representative consumer incurs travel costs to the firm for each unit purchased; these travel costs increase with the amount of travel to each firm. The unique Nash-Bertrand equilibrium price exceeds the sum of the marginal production cost and the marginal external travel cost. Asymmetric equilibria lead to an inefficient distribution of travel between firms. Link tolls or subsidies can be useful to improve the distribution of traffic, but also reduce the welfare costs from imperfect competition.