Horizontally Differentiated Market Makers

Simon Loertscher

Journal of Economics & Management Strategy, 2007, vol. 16, issue 4, 793-825

Abstract: I analyze a model of competition between two market makers who are located at the opposite ends of the Hotelling line, both of which are also occupied by a search market. Buyers and sellers are uniformly distributed between the two market places, yet can only trade at one of them. In equilibrium, market makers net a positive profit and trade with buyers and sellers close to them, while buyers and sellers further away participate in search markets. Interestingly, a duopolistic market maker nets a larger profit than a monopoly because search markets make the quantities market makers trade strategic complements.

Date: 2007
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https://doi.org/10.1111/j.1530-9134.2007.00158.x

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