Existence and uniqueness of price equilibria in location-based models of differentiation with full coverage

Abstract In location-based models of price competition, traditional sufficient conditions for existence and uniqueness of an equilibrium (Caplin and Nalebuff in Econometrica 59(1):25–59) are not robust for the firm that serves the right-tail of the consumers’ distribution. Interestingly, as we relax these conditions, we observe only two new alternative cases. Moreover, we identify a novel, easily testable condition for uniqueness that is weaker than log-concavity and that can also apply to Mechanism Design. Thanks to this general framework, we can solve the equilibrium of general vertical differentiation models numerically and show that inequality has a U-shaped effect on profits and prices of a high-quality firm. Moreover, we prove that extreme levels of concentration can dissolve natural monopolies and restore competition, contrary to the Uniform case.