Economics at your fingertips  

Hotelling-Bertrand duopoly competition under firm-specific network effects

Marco Tolotti () and Jorge Yepez

Journal of Economic Behavior & Organization, 2020, vol. 176, issue C, 105-128

Abstract: Social pressure plays a crucial role in consumer choices; the impact of network/social effects has also been largely recognised in the context of market competition. In this paper, we consider a duopoly where competing firms are differentiated solely by the level of social (or network) externality they induce on consumers’ perceived utility. We fully characterise Nash equilibria in locations, prices and market shares. Under a scenario of weak social externality, firms opt for maximum differentiation, and the firm with the highest social recognition enjoys a relative advantage in terms of profit. This outcome is not the only possible; we formally prove that large values of social recognition may lead to “adverse coordination among consumers” and move the strongest firm out of the market with positive probability. This scenario is related to a Pareto-inefficient trap of no differentiation.

Keywords: Consumer choice game; Duopoly price competition; Hotelling location model; Network externalities; Large games; Social interaction (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Hotelling-Bertrand duopoly competition under firrm-specific network e effects (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.jebo.2020.05.004

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2021-06-30
Handle: RePEc:eee:jeborg:v:176:y:2020:i:c:p:105-128