Hotelling competition with multi-purchasing
Working paper
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http://hdl.handle.net/11250/164003Utgivelsesdato
2010-12Metadata
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Sammendrag
We analyze a Hotelling model where consumers either buy one out of two goods (single-purchase) or both (multi-purchase).
The firms pricing strategies
turn out to be fundamentally different if some consumers multi-purchase compared
to if all single-purchase. Prices are strategic complements under single-purchase, and
increase with quality. In a multi-purchase regime, in contrast, prices are strategically independent because firms then act monopolistically by pricing the incremental
benefit to marginal consumers. Furthermore, prices can decrease with quality due
to overlapping characteristics. Higher preference heterogeneity increases prices and
profits in equilibrium with single-purchase, but decreases them with multi-purchase.
Utgiver
Norwegian School of Economics and Business Administration. Department of Finance and Management ScienceSerie
Discussion paper2010:16