Endogenous unrestricted locations in markets with network effects

Vitor Ribeiro

No 2015-11, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: The paper studies indirect network effects in a market composed by two incompatible intermediaries that choose price (short-term issue) in addition to location (long-term issue). The paper first shows that (i) when the network externality is sufficiently weak, only maximum differentiation prevails, (ii) the location equilibrium can be asymmetric for an intermediate level of the network externality, given that the first entrant locates at the city centre while the follower chooses an extreme (niche) positional location and (iii) tipping occurs favouring the leader in the location choice when the intensity of the network externality is sufficiently strong. Moreover, the paper concludes that the likelihood of an asymmetric location equilibrium is higher when there is no mismatch between the product space occupied by consumers and intermediaries. Finally, the author concludes that a penetration pricing strategy conducted by a third intermediary is more successful when the pre-entry condition is not the tipping equilibrium location.

Keywords: simple network effect; unconstrained spatial competition; location leadership (search for similar items in EconPapers)
JEL-codes: D43 L13 R12 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-com, nep-geo, nep-mfd, nep-mic, nep-net and nep-ure
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http://www.economics-ejournal.org/economics/discussionpapers/2015-11
https://www.econstor.eu/bitstream/10419/107417/1/818790652.pdf (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201511

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