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How Transport Costs Affect the Decision to Purchase a New or a Remanufactured Good

Batabyal, Amitrajeet and Beladi, Hamid (2017): How Transport Costs Affect the Decision to Purchase a New or a Remanufactured Good.

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We provide the first strategic analysis of the interaction between a continuum of potentially green consumers and two firms in regional science. Firm 1 (2) sells new (remanufactured) toner cartridges. Each firm selects its price and a consumer purchases from the firm that offers her the highest utility. Utility is given by a surplus measure, the price, and by the transport cost incurred in traveling to a firm’s location. We first derive the best response functions of the two firms. Second, we stipulate a numerical value for the surplus measure and show that when the two firms select their “monopoly” prices, the Nash equilibrium is unique. Third, we specify a linear transport cost function with a constant coefficient and show that the costlier it is for consumers to get to the locations of the two firms, the higher is the price charged by these two firms. Finally, our analysis shows that there is a need to study models in which the two toner cartridges are dissimilar, the interaction between consumers and firms is repeated, and behavioral factors are taken into account.

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