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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

    as
    1. 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.
    2. 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.
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    Cited by:

    1. Matthew Gentzkow & Jesse M. Shapiro, 2015. "Ideology and Online News," NBER Chapters, in: Economic Analysis of the Digital Economy, pages 169-190, National Bureau of Economic Research, Inc.
    2. Peitz, Martin & Reisinger, Markus, 2014. "The Economics of Internet Media," Working Papers 14-23, University of Mannheim, Department of Economics.
    3. Yu-Fu Chen & Michael Funke, 2010. "Global Warming And Extreme Events: Rethinking The Timing And Intensity Of Environmental Policy," Dundee Discussion Papers in Economics 236, Economic Studies, University of Dundee.
    4. Matthew Gentzkow & Jesse M. Shapiro & Michael Sinkinson, 2014. "Competition and Ideological Diversity: Historical Evidence from US Newspapers," American Economic Review, American Economic Association, vol. 104(10), pages 3073-3114, October.
    5. 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.
    6. Rudiger, Jesper, 2013. "Cross-Checking the Media," MPRA Paper 51786, University Library of Munich, Germany.

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    More about this item

    Keywords

    Multi-purchase; incremental pricing; content competition;
    All these keywords.

    JEL classification:

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

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