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A cautionary note on using hotelling models in platform markets

Thomas Jeitschko (), Soo Jin Kim and Aleksandr Yankelevich

No 286, DICE Discussion Papers from University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: We study a Hotelling framework in which customers first pay a monopoly platform to enter the market before deciding between two competing services on opposite ends of a Hotelling line. This setup is common when modeling competition in Internet content provision. We find that standard taken-for-granted solution methods under full market coverage break down, and that in the unique full-coverage equilibrium, the competing service providers set substantially lower prices. Standard methods and prices are restored by giving service providers the first move.

Keywords: Hotelling Model; First Mover Advantage; Two-Sided Market (search for similar items in EconPapers)
JEL-codes: D21 D43 L0 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-com, nep-ind and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:286

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