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Hotelling competition with multi-purchasing

Author

Listed:
  • 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.

Suggested Citation

  • Anderson, Simon P. & Foros, Øystein & Kind, Hans Jarle, 2010. "Hotelling competition with multi-purchasing," Discussion Papers 2010/16, Norwegian School of Economics, Department of Business and Management Science.
  • Handle: RePEc:hhs:nhhfms:2010_016
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    File URL: http://hdl.handle.net/11250/164004
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    References listed on IDEAS

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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. Peitz, Martin & Reisinger, Markus, 2014. "The Economics of Internet Media," Working Papers 14-23, University of Mannheim, Department of Economics.
    2. Anderson, Simon P. & Foros, Øystein & Kind, Hans Jarle & Peitz, Martin, 2012. "Media market concentration, advertising levels, and ad prices," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 321-325.

    More about this item

    Keywords

    Multi-purchase; incremental pricing; content competition;

    JEL classification:

    • G00 - Financial Economics - - General - - - General

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