Location Decisions of Competing Networks

Konstantinos Serfes () and Eleftherios Zacharias

Journal of Economics & Management Strategy, 2012, vol. 21, issue 4, 989-1005

Abstract: Early entrants in markets with network effects usually occupy a “central location” and serve agents with “intermediate tastes,” whereas later entrants are niche players. Why would the first entrant choose to become a “general” network, given that later entrants will not have enough room for differentiation, resulting in a more intense competition for market share? In a Hotelling model with two rival networks, we show that for intermediate values of the network externality parameter the location equilibrium is indeed asymmetric: the first entrant locates at the center whereas the second entrant chooses an extreme (niche) location.

Date: 2012
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https://doi.org/10.1111/j.1530-9134.2012.00349.x

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