Price and Quantity Competition in a Hotelling Linear Market Model with Network Connectivity

Tsuyoshi Toshimitsu ()
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Tsuyoshi Toshimitsu: School of Economics, Kwansei Gakuin University

No 283, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: Introducing network externalities into a Hotelling linear market model, we consider the profit ranking of Bertrand and Cournot equilibria, the problem of endogenous choice of strategic variables, and welfare efficiency. In particular, focusing on network connectivity (horizontal interoperability) between network products, we demonstrate the following results: (i) firms earn higher (lower) profits under Bertrand competition rather than under Cournot competition if network connectivity is sufficiently large (small); (ii) firms choose price (quantity) contracts if network connectivity is sufficiently large (small); (iii) social efficiency is achieved under Bertrand competition if network connectivity is sufficiently large.

Keywords: Hotelling linear market model; Bertrand competition; Cournot competition; network connectivity; fulfilled expectations; rational expectations (search for similar items in EconPapers)
JEL-codes: D43 L13 L15 L22 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2024-12
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind, nep-mic and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:283

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