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Price and Quantity Competition in a Hotelling Linear Market Model with Network Connectivity

Author

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  • Tsuyoshi Toshimitsu

    (School of Economics, Kwansei Gakuin University)

Abstract

Introducing network externalities into a Hotelling linear market model, we consider the profit ranking of Bertrand and Cournot equilibria, the problem of endogenous choice of strategic variables, and welfare efficiency. In particular, focusing on network connectivity (horizontal interoperability) between network products, we demonstrate the following results: (i) firms earn higher (lower) profits under Bertrand competition rather than under Cournot competition if network connectivity is sufficiently large (small); (ii) firms choose price (quantity) contracts if network connectivity is sufficiently large (small); (iii) social efficiency is achieved under Bertrand competition if network connectivity is sufficiently large.

Suggested Citation

  • Tsuyoshi Toshimitsu, 2024. "Price and Quantity Competition in a Hotelling Linear Market Model with Network Connectivity," Discussion Paper Series 283, School of Economics, Kwansei Gakuin University.
    • Handle: RePEc:kgu:wpaper:283
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    References listed on IDEAS

    as
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    7. Shy,Oz, 2001. "The Economics of Network Industries," Cambridge Books, Cambridge University Press, number 9780521800952, November.
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    More about this item

    Keywords

    Hotelling linear market model; Bertrand competition; Cournot competition; network connectivity; fulfilled expectations; rational expectations;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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