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Hotelling’s location model with negative network externalities

Author

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  • Hans Peters

    (Maastricht University)

  • Marc Schröder

    (RWTH Aachen University)

  • Dries Vermeulen

    (Maastricht University)

Abstract

We study a variation of Hotelling’s location model in which consumers choose between firms based on travel distances as well as the number of consumers visiting each firm. The model in which the network externality is the same for all firms was proposed by Kohlberg (Econ Lett 11:211–216, 1983), who claims that no equilibrium exists for more than two firms. We assume the network effects to be linear and, in contrast to the claim in Kohlberg (Econ Lett 11:211–216, 1983), derive a condition under which a subgame perfect Nash equilibrium exists for four and six firms. Moreover, we show that for more than two firms the equilibrium locations of the firms are different from the equilibrium locations in Hotelling’s location model. Our results suggest that a subgame perfect Nash equilibrium exists if and only if the number of firms is even. We also provide examples of subgame perfect equilibria in which the network externality is different for some of the firms.

Suggested Citation

  • Hans Peters & Marc Schröder & Dries Vermeulen, 2018. "Hotelling’s location model with negative network externalities," International Journal of Game Theory, Springer;Game Theory Society, vol. 47(3), pages 811-837, September.
    • Handle: RePEc:spr:jogath:v:47:y:2018:i:3:d:10.1007_s00182-018-0615-0
    DOI: 10.1007/s00182-018-0615-0
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    Cited by:

    1. Gaëtan Fournier, 2019. "General distribution of consumers in pure Hotelling games," International Journal of Game Theory, Springer;Game Theory Society, vol. 48(1), pages 33-59, March.
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    3. Dodge Cahan & Hongjia H. Chen & Louis Christie & Arkadii Slinko, 2021. "Spatial competition on 2-dimensional markets and networks when consumers don’t always go to the closest firm," International Journal of Game Theory, Springer;Game Theory Society, vol. 50(4), pages 945-970, December.
    4. Li Cheng & Liu Conglin, 2023. "Game analysis and pricing strategy of duopoly airlines based on service," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 14(3), pages 1103-1124, June.

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