A cautionary note on using hotelling models in platform markets

Thomas D. Jeitschko, Soo Jin Kim, Aleksandr Yankelevich

We study a Hotelling framework in which customers first pay a monopoly platform to enter the market before deciding between two competing services on opposite ends of a Hotelling line. This setup is common when modeling competition in Internet content provision. We find that standard taken-for-granted solution methods under full market coverage break down, and that in the unique full-coverage equilibrium, the competing service providers set substantially lower prices. Standard methods and prices are restored by giving service providers the first move.

MoreLess

Year of publication:	April 2018
Authors:	Jeitschko, Thomas D. ; Kim, Soo Jin ; Yankelevich, Aleksandr
Publisher:	Düsseldorf, Germany : düsseldorf university press
Subject:	Hotelling Model \| First Mover Advantage \| Two-Sided Market \| Hotelling-Modell \| Hotelling model \| Theorie \| Theory \| Hotellerie \| Hotel industry \| Netzwerkökonomik \| Network economics \| Duopol \| Duopoly