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The Intensity of Competition in the Hotelling Model: A New Generalization and Applications

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  • Kim, Jaesoo

Abstract

I develop a simple Hotelling model which relates the distribution of consumer preferences to the intensity of competition. I impose two properties, mean preserving spread (MPS) and monotone likelihood ratio property (MLRP), on distribution functions. These properties provide a way to represent the intensity of competition in the Hotelling model. Market competition is less intense as the distribution is dispersed in that the MPS raises firms' equilibrium prices. This approach can describe how the intensity of competition influences the effects of firm's various strategies, which has been largely neglected in most papers. Non-uniform distributions can reverse some well-known results derived under the uniform distribution dramatically. They also allow us to discover new results that the uniform distribution could not demonstrate. As examples, I study three issues such as incentives for innovation, preference based price discrimination, and incentives for information sharing.

Suggested Citation

  • Kim, Jaesoo, 2007. "The Intensity of Competition in the Hotelling Model: A New Generalization and Applications," MPRA Paper 6876, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:6876
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    File URL: https://mpra.ub.uni-muenchen.de/6876/2/MPRA_paper_6876.pdf
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    References listed on IDEAS

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    1. Blundell,Richard & Newey,Whitney K. & Persson,Torsten (ed.), 2006. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9780521871525, January.
    2. Blundell,Richard & Newey,Whitney K. & Persson,Torsten (ed.), 2006. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9780521692083, January.
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    Cited by:

    1. Amit Mehra & Ram Bala & Ramesh Sankaranarayanan, 2012. "Competitive Behavior-Based Price Discrimination for Software Upgrades," Information Systems Research, INFORMS, vol. 23(1), pages 60-74, March.

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    More about this item

    Keywords

    Hotelling model; intensity of competition; mean-preserving spread (contraction); monotone likelihood ratio property; innovation; preference-based price discrimination; information sharing;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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