11. A general framework for retailer competition under elastic demand and quantity-dependent transport costs

Esteves, R. B., & Carballo-Cruz, F. (2025). A general framework for retailer competition under elastic demand and quantity-dependent transport costs. Journal of Retailing and Consumer Services, 87. https://doi.org/10.1016/j.jretconser.2025.104358This paper develops a general framework for spatial retailer competition by extending the classic Hotelling model to incorporate elastic demand and quantity-dependent transport costs. Unlike traditional models with fixed purchase quantities, consumers here adjust the amount bought in response to prices, while transport costs increase with both distance and quantity. A key innovation is the elasticity parameter that captures how transport costs scale with the purchased quantity, allowing the model to differentiate between bulky and lightweight goods. The analysis shows that standard results on spatial differentiation still hold: greater differentiation relaxes competition and raises prices, while more elastic demand intensifies price competition. However, quantity-dependent transport costs crucially shape market outcomes. When transport costs rise strongly with quantity, as for bulky products, consumers are less willing to travel, reducing competitive pressure and increasing local market power and profits. For lightweight goods, transport costs depend mainly on distance, intensifying competition and lowering prices. The framework offers insights for pricing strategies and highlights potential welfare concerns from localized monopolies.