Competitive Dynamics in Hierarchically Organized Markets: Spatial Duopoly and Demand Asymmetries

In recent years, there has been considerable interest in the impact of corporate organizational structure on the configuration of prices, outputs, and profits in spatially extensive markets. In previous research I examined the general and analytical conditions defining both the existence and stability of an equilibrium in hierarchically organized spatial markets dominated by oligopolistic corporations that distribute a commodity directly to consumers through their retail franchises. Here I examine the disequilibrium dynamics resulting from this model. A bilevel decisionmaking process is hypothesized in which corporations vary their delivered prices in response to changes in urban market demand and in which franchises vary their retail prices in response both to changes in the cost of the commodity from their parent corporation and to the pricing strategies pursued by their competitors. The complexity of interactions operating between the two levels of the model and the presence of asymmetrical demand conditions facing duopolistic corporations suggests that it is unlikely that an overall spatial price equilibrium can actually be reached by such disequilibrium price-adjustment strategies.