Location games with references

Abstract

We study a class of location games where players want to attract as many resources as possible and pay a cost when deviating from an exogenous reference location. This class of games includes political competitions between policy-interested parties and firms' costly horizontal differentiation. We provide a complete analysis of the duopoly competition: depending on the reference locations, we observe a unique equilibrium with, or without differentiation, or no equilibrium. We extend the analysis to a competition between an arbitrary number of players and we show that there exists at most one equilibrium which has a strong property: only the two most-left and most-right players deviate from their reference locations.