Suchergebnisse

AbstractThis paper explores the impact of intensity of rivalry in downstream market on the equilibrium locations of the downstream firms under a vertical market structure á la Hotelling. We find that: (i) the presence of upstream firms softens the spatial competition in downstream market; (ii) minimum differentiation cannot be achieved as the equilibrium outcome and the equilibrium product differentiation is insufficient relative to socially optimum; (iii) social welfare is higher with a higher weight attached to intensity of rivalry, which is different from the non-monotonic relationship under the horizontal market case; (iv) the equilibrium product differentiation is independent of bargaining power under the two-part tariff contracts, which is different from Brekke and Straume (2004) under linear pricing.

ABSTRACTWe merge the two‐sided markets duopoly model of Armstrong (2006) with the nested vertical and horizontal differentiation model of Gabszewicz and Wauthy (2012), which consists of a linear city with different consumer densities on the left and on the right side of the city. In equilibrium, the high‐quality platform sells at a higher price and captures a greater market share than the low‐quality platform, despite the indifferent consumer being closer to the high‐quality platform. The difference between market shares is lower than socially optimal. A perturbation that introduces a negligible difference between the consumer density on the left and on the right side of the city may disrupt existence of equilibrium in the model of Armstrong (2006).