The competition of investments for endogenous transportation costs in a spatial model

This paper proposes a two-stage spatial duopoly model to explore how the firms improve the value of product by service enhancement. In the model, we assume that the higher service ability means lower transportation cost. The results show that when two private firms participate in competition, no firm tends to invest more under the profit-maximizing objection. But when one is a public firm, the private firm may participate in competition with better service and higher price relative to the public one.

► A two-stage spatial duopoly model about service enhancement is built. ► No firm tends to invest more when two private firms participate in competition. ► Private firm may provide better service and higher price instead of public one.