Nesting Vertical and Horizontal Differentiation in Two-Sided Markets
We develop a model that is a synthesis of the two-sided markets duopoly model of Armstrong (2006) with the nested vertical and horizontal di erentiation model of Gabszewicz and Wauthy (2012), which consists of a linear city with di erent 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 indiff erent consumer being closer to the high-quality platform. The di fference between market shares is lower than socially optimal, because of the inter-group externality and because the high-quality platform sells at a higher price. We conclude that a perturbation that introduces a negligible di erence between the consumer density on the left and on the right side of the city may disrupt the existence of equilibrium in the model of Armstrong (2006). Finally, we show that inter-group externalities make it easier to deter an inferior-quality entrant and make it easier for a superior-quality entrant to conquer the market.
|Date of creation:||May 2014|
|Date of revision:|
|Contact details of provider:|| Postal: Rua Dr. Roberto Frias, 4200 PORTO|
Web page: http://www.fep.up.pt/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Irmen, Andreas & Thisse, Jacques-Francois, 1998.
"Competition in Multi-characteristics Spaces: Hotelling Was Almost Right,"
Journal of Economic Theory,
Elsevier, vol. 78(1), pages 76-102, January.
- IRMEN, Andreas & THISSE, Jacques-Francois, 1997. "Competition in multi-characteristics spaces: hotelling was almost right," CORE Discussion Papers 1997053, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Irmen, A. & Thisse, J.-F., . "Competition in multi-characteristics spaces: Hotelling was almost right," CORE Discussion Papers RP 1305, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Irmen, Andreas & Thisse, Jacques-François, 1996. "Competition in Multi-characteristics Spaces: Hotelling was Almost Right," CEPR Discussion Papers 1446, C.E.P.R. Discussion Papers.
- Andreas IRMEN & Jean-François THISSE, 1996. "Competition in Multi-Characteristics Spaces: Hotelling Was Almost Right," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9613, Université de Lausanne, Faculté des HEC, DEEP.
- Griva, Krina & Vettas, Nikolaos, 2011.
"Price competition in a differentiated products duopoly under network effects,"
Information Economics and Policy,
Elsevier, vol. 23(1), pages 85-97, March.
- Griva, Krina & Vettas, Nikolaos, 2004. "Price Competition in a Differentiated Products Duopoly Under Network Effects," CEPR Discussion Papers 4574, C.E.P.R. Discussion Papers.
- GABSZEWICZ, Jean J. & RESENDE, Joana, 2007.
"Thematic clubs and the supremacy of network externalities,"
CORE Discussion Papers
2007073, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Rabah Amir & Jean Gabszewicz & Joana Resende, 2014. "Thematic Clubs and the Supremacy of Network Externalities," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(5), pages 706-729, October.
- GABSZEWICZ, Jean J. & WAUTHY, Xavier Yves, .
"Nesting horizontal and vertical differentiation,"
CORE Discussion Papers RP
2460, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Farrell, Joseph & Shapiro, Carl, 1989.
"Optimal Contracts with Lock-In,"
American Economic Review,
American Economic Association, vol. 79(1), pages 51-68, March.
- Farrell, Joseph & Shapiro, Carl, 1987. "Optimal Contracts with Lock-In," Department of Economics, Working Paper Series qt19f324hf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Joseph Farrell and Carl Shapiro., 1987. "Optimal Contracts with Lock-In," Economics Working Papers 8758, University of California at Berkeley.
- Argenziano, Rossella, 2007.
"Differentiated Networks: Equilibrium and Efficiency,"
Economics Discussion Papers
2646, University of Essex, Department of Economics.
- Rossella Argenziano, 2008. "Differentiated networks: equilibrium and efficiency," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 747-769.
- RESENDE, Joana, 2007.
"The economic advantage of “being the voice of the majority”,"
CORE Discussion Papers
2007028, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Joana Resende, 2008. "The Economic Advantage of Being the “Voice of the Majority”," Journal of Media Economics, Taylor & Francis Journals, vol. 21(3), pages 158-190.
- António Brandão & João Correia-da-Silva & Joana Pinho, 2010.
"Spatial competition between shopping centers,"
FEP Working Papers
394, Universidade do Porto, Faculdade de Economia do Porto.
- Konstantinos Serfes & Eleftherios Zacharias, 2009. "Location Decisions of Competing Platforms," Working Papers 09-18, NET Institute, revised Aug 2009.
- Scotchmer, Suzanne, 1986. "Market share inertia with more than two firms : An existence problem," Economics Letters, Elsevier, vol. 21(1), pages 77-79.
- Economides, Nicholas, 1993. "Quality variations in the circular model of variety-differentiated products," Regional Science and Urban Economics, Elsevier, vol. 23(2), pages 235-257, April.
When requesting a correction, please mention this item's handle: RePEc:por:fepwps:535. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.