FREE ENTRY AND THE LOCATIONAL EQUILIBRIUM

Locational phenomena are examined under the assumption that firms have perfect foresight. In the short run, competitive and cooperative price equilibria may be found; the competitive solution is equivalent to Hotelling's duopolistic equilibrium. In the medium term, prices are set as a function of location patterns, such that profits equal zero. In the long run, the assumptions of free entry and perfect foresight do not yield unique locational equilibria: such an equilibrium requires naive beliefs on the part of firms. Doubt is therefore cast upon the usefulness of the assumptions of certainty and homogeneity.