Imperfect competition and congestion in the City



B.3 Long-run equilibrium

Note that if n is log-concave, then n (n - 1) Γd is increasing is n, as well as
n (n - 1) Γw and therefore the markup pe - c - we is decreasing in n (see [2]).
As a consequence,
πe = N(p nwc) (F + S) is decreasing at least in an
hyperbolic manner and there exists a unique free entry equilibrium given by:

1    [         μd         +         μw         ʌ = (F + S)

n2 (n 1) I R∞∞ h2 (x) Hn-2 (x) dx   R∞∞ g2 (x) Gn-2 (x) dx j      N

C Proof of Proposition 4

The profit function is (where N is normalized to one, w.l.o.g.):
ei(wi,w-i,p) = £gi(wi) Wi c ΛhPw)] NPw (F + S).

The first-order condition is:

de<<w-w-<-p> = μ'dg/w ) : Pw + r9,fWi) Wi c hpiw] P = 0.

∂wi             dwi          i                              i   dwi

Moreover, we have:

2ei(wi,w-i,p)
∂wi


μd2gi(wi) Pw + 2 μdgi(wi)
dw2 J i y dwi


л dPwh μ w y
dwi         dwi


+ rgi (wi) wic hPiw ]


d2Piw
dwi2


We wish to show that any turning point is a maximum:


2πei (wi, wi, p)


Bw2


< 0.

FOC


If this condition is satisfied everywhere, the profit function πei (wi, w-i, p) is
quasi-concave, and the candidate symmetric equilibrium is Nash.

Note that, the first-order condition equation can be rewritten as:

gi (wi) wi c hPiw


d dgi(wi)
y dwi


1 Piw


dP w
i
dwi


Using this expression, we obtain after simplifications:

31



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