What follows is similar to Burdett and Judd (1983). Consider a market with N retailers selling two homogeneous goods labeled A and B. Marginal cost of production ci (i = a; b) is assumed to be constant, independent of a production level of the other good and equal among the retailers. Cost of producing a bundle of one unit of each good will be denoted by cab and is equal to ca + cb. All consumers have identical tastes and their mass per retailer is normalized to one. The consumers demand exactly one unit of each good and the triplet (va; vb; vab) describes their reservation.
