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Centralization utility
Ui = 1 − α |1/2 − i| − C
Decentralization utility
For people in the left region:
Ui = 1 − α |1/4 − i| − 2C
For people in the right region:
Ui = 1 − α |3/4 − i| − 2C
Optimal decentralization
C ≤ α / 4
Hotelling Model Customer Utility
Ui = v - p - tdi
Hotelling Model Indifferent Consumer Condition
p1 + tx = p2 + t(1 - x)
Hotelling Model Equilibrium Price
p* = c + t
Cartel sustainability equation
a/1-p >= b + [c*p/1-p]
a = cooperation value
b = cheating value
c = punishment value