Effects of timing and multiple entries in hotelling : a one-sided and two-sided market analysis

Abstract

The purpose of this paper has been to study how timing and multiple entries affect the equilibrium outcome in a Hotelling model for one-sided and two-sided markets. After reviewing relevant theory, we present two models: a location-cum-consumer-price model (one-sided market), and a location-cum-advertisement-price model (two-sided market). In the models, the firms, choosing locations on the Hotelling line when entering and then prices, either make their location-decision simultaneously, or one by one. These two models, both with and without sequential location-decisions, has been solved using numerical analysis. The equilibrium outcomes have been analyzed using the Herfindahl Hirschman Index, a Locational Asymmetry Index, and by looking at consumer surplus loss due to transportation costs. We find that increasing the number of firms generally lead to a more socially optimal outcome. When allowing for sequential entry, some firms manage to take advantage of the locational structure. We observe, however, that it does not always pay to move first.