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Hotelling competition with multi-purchasing

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Author Info

  • Anderson, Simon P.

    ()
    (Dept. of Economics, University of Virginia)

  • Foros, Øystein

    ()
    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Kind, Hans Jarle

    ()
    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Abstract

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.

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Bibliographic Info

Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2010/16.

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Length: 33 pages
Date of creation: 11 Dec 2010
Date of revision:
Handle: RePEc:hhs:nhhfms:2010_016

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Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
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Related research

Keywords: Multi-purchase; incremental pricing; content competition;

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References

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  1. Matthew Gentzkow, 2007. "Valuing New Goods in a Model with Complementarity: Online Newspapers," American Economic Review, American Economic Association, vol. 97(3), pages 713-744, June.
  2. de Palma, Andre & Leruth, Luc & Regibeau, Pierre, 1999. "Partial compatibility with network externalities and double purchase," Information Economics and Policy, Elsevier, vol. 11(2), pages 209-227, July.
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Cited by:
  1. Simon P. Anderson & Oystein Foros & Hans Jarle Kind & Martin Peitz, 2011. "Media Market Concentration, Advertising Levels, and Ad Prices," CESifo Working Paper Series 3677, CESifo Group Munich.

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