hotelling model of oligopoly

(Harold Hotelling’s simple model of product differentiation dates to 1929. (2009) point out that allowing R to depend on the consumer base is tantamount to considering variable returns to scale in the audience, with less (more) entry when the revenue R increases (decreases) with Ni.60. By contrast, in duopoly, some of the lost business due to increased advertising levels comes from overlapping consumers. Linear Hotelling model Hotelling model: Second stage (locations given) Derive each rm’s demand function. As a consequence, competition plays out in exactly the same way in the two models. We now explore these extra dimensions to performance. However, consumers in the middle segment of the Hotelling line enjoy a positive utility on each platform (given that advertising levels are not too high). And if they have a formal agreement to collude, we call these players right over here, we call them a cartel. Such as Hotelling ’s linear city model, it concluded that the duopoly companies agglomerate at the center of the line model ; however, at center, there exists only a unique location equilibrium. One way to tackle the problem is to consider sequential entry of foresighted outlets that accounts for both the locations of subsequent entrants and the possibility of deterring their entry. Each local producer's quality and audience share is larger in larger local markets, and so the disparity is largest in the smallest markets. Of particular note is the implication that programming choices are driven by advertisers’ desire to impress consumers of genres more likely to buy the advertised products. when subscribing to platform 1 only. Bertrand and Hotelling 2 Oligopoly. With these effects in mind, several results can be drawn off the shelf from existing equilibrium models of spatial competition. In the context of the Vickrey (1964)–Salop (1979) model with free entry (discussed further below), Choi (2006) shows that, contrasting with excessive entry in pay media, free media may induce insufficient or excessive product diversity. This comes from the strategic effect of softening competition. The homogeneous-products Bertrand model of oligopoly applies when firms in the oligopoly produce standardized products at same marginal cost. This is because the strategic effect of relaxing competition dominates the direct effect for all interior locations for this disutility specification. Platforms offer contracts to advertisers consisting of an advertising level mi in exchange for a transfer payment ti. We now introduce ad nuisance into the spatial duopoly framework. However, it is straightforward to transfer Steiner's model into a Hotelling framework (see discussion by Anderson and Gabszewicz, 2006). (2014) discuss the supply of multiple content in a model of decreasing return per impression and imperfect tracking of viewer behavior. Suppose that the value of informing an exclusive consumer equals ϑ, while the value of informing a multi-homing consumer equals ϑ1+λ, with λ∈01. Bertrand, Edgeworth, Chamberlin, Robinson and Hotelling) made clear. This points to a potential free-rider issue insofar as investment by one platform to reduce the multi-homing demand benefits all platforms. Customers are uniformly distributed along that interval. This captures the idea that the consumer might be exposed to the same ad twice, implying decreasing marginal returns from advertising. The important point is that a weak advertising demand delivers low equilibrium diversity because the economic impetus for entry is absent through low profitability from advertising. Their mechanism is thus different from the standard arguments about ad caps (e.g., Anderson, 2007).59. Two recent papers consider different preferences and demand. The communities levy equal lump-sum head taxes to pay for the public good, whose total cost is C in each community. With a little bit of detail added, this model, due to Hotelling, helps clarify the strategic nature of our electoral game. A weak advertising demand is bad news for platforms, but so too is a strong one because then profits are dissipated through high investments in quality to try and attract consumers. With strong advertising demand, the classic over-entry result still attains: Choi (2006) notes the strong disconnect between optimal variety and advertising levels in this case, albeit for the first-best optimum.61 Indeed, the disconnect holds whenever markets are fully covered: the first-best optimal ad level of ads satisfies va0=γ regardless of the number of platforms. There are two main types of collusion, cartels and price leadership. Indeed, oligopoly competition is the leading example of strategic interaction and it should su¢ ce to mention that the equilibrium concept of Cournot is just the modern Nash equilibrium. The strategic e ect dominates the demand e ect. We can also use the spatial analysis of Section 2.2 to determine the equilibrium outcome for a mixed-finance system (ads and subscription prices to consumers). The utility of a consumer located at x is then u0 − γa1 − tx when consuming from platform 1 and u0 − γn2 − t(1 − x) when consuming from platform 2. Hotelling Model We first take the locations of the sellers as given (afterwards we are going to determine them endogenously) and assume firms compete in prices. The market may therefore involve a far sparser coverage of product variety than would be suggested by models where outlets are spaced so that all earn zero profit. Severe nonexistence problems arise, however, at the stage of … Not surprisingly, the surplus captured by newspaper publishers is higher when they are permitted to adjust newspaper quality. The parameter r represents the reservation value of a consumer while τ is, as before, the transportation parameter. In addition, she generalizes the model of demand for newspapers by allowing households to purchase at most two daily newspapers, in contrast to most previous work, which assumed single-homing on the subscription side. This indicates that market failures through underprovision of variety can be especially severe in such circumstances, for example in less-developed nations. The demand configuration is displayed in Figure 10.6. Serious empirical work, such as that discussed by Epple and Londregan in this volume (ch. If, in contrast, the media platforms are purely ad-financed, and the audience is indifferent to the ad level, the platforms will want to maximize the number of viewers/readers/listeners (i.e., consumers). For instance, Peitz and Valletti (2008) show that pay-platforms deliver more advertising and higher total welfare than free platforms when the nuisance from advertising is small. The second, more subtle, distortion is that it can prevent localities from providing the level of public goods that maximizes social welfare. (This is the median voter theorem.) It was developed as a (spatial) model of location choice by Hotelling (1929) and has been co-opted by several distinct areas in economics. This curbs its incentive to increase the advertising level. First, each multi-homing consumer can now get informed about an advertiser's product on both platforms. The implication is that equilibrium product variety is not impacted by the advertiser demand strength. Fan (2013) develops a structural model of the newspaper industry to analyze the welfare consequences of newspaper mergers. Since results from the simpler models may not remain valid for more complex models, without further work we cannot be confident that insights from the simpler models will remain valid for the more complex. Oligopoly: Horizontal Product Differentiation. They use a method laid out in a companion paper, and recover estimates of newspaper publishers’ marginal costs. Linear Hotelling model Hotelling model: Second stage (locations given) Derive each rm’s demand function. She uses county-level circulation data on US newspapers between 1997 and 2005. Suppose that there are two platforms, 1 and 2. Ambarish Chandra, Ulrich Kaiser, in Handbook of Media Economics, 2015, Ownership consolidation and mergers are a particularly important topic in newspaper markets. If both platforms have the same content, a fraction d12 of consumers multi-home. If consumers only single-home and more than two-thirds of them are interested in content A instead of content B, then both platforms will specialize in content A. This implies that the disutility of a consumer located at x from not consuming the preferred content is g(|x − α|) or g(|1 − β − x|), depending on which platform the consumer is active, where g is an increasing function. Lerner, A. P., and Singer, H. W., 1937, “Some notes on duopoly and spatial competition. To see this, note that the total demand of platform 1 includes all consumers between 0 and x21,2. (2004) also consider multi-homing consumers but do not consider advertiser competition in the product market. As a consequence, platform i can demand only. For n = 4, two players occupy 1/4 and two players occupy 3/4. A general insight from the, International Journal of Production Economics, International Journal of Industrial Organization. But when this is going on, this kind of coordination between the players in an oligopoly, this is called collusion. This is also referred to as the principle of minimum differentiation as well as Hotelling's linear city model. In the broader perspective, program quality, type, and variety of offerings are paramount to evaluating consumer satisfaction with media. The structure in each local market is like the Armstrong and Weeds (2007) setup, i.e., “Hotelling” segments with ad levels being set in local markets by both the local and the global competitor, but all such local segments are effectively connected through the hub. Due to the concavity of the advertising technology, a platform can make more profits by having all advertisers on board instead of just a fraction of it. That is, the program diversity is smaller, the larger is the advertising aversion of consumers (measured by increasing marginal disutility of advertising). This becomes the welfare standard against which the actual equilibrium is compared. Instead, they assume that the disutility of consumers is convex in the advertising level—that is, the disutility from advertising is aiθ, with θ≥1. Therefore, a price cut leads only to business stealing but does not increase overall demand in the market. Game Theory Oligopoly Econ 1 Marcelo Clerici-Arias Lecture 8 October 15, 2015 Today Repeated A key feature of their model is that advertisers value not just the number of readers at a given newspaper, but also their characteristics. Gabszewicz et al. A multi-channel monopoly platform has no incentives to offer several identical channels. Due to the fact that entrants must fit between existing outlets (in their programming formats), the upshot can be that outlets in the market can earn substantial pure profits in equilibrium (see, e.g., Archibald et al., 1986, for a forceful argument). This might affect their differentiation incentives. This implies that the additional benefit of consuming an amount q2 of news or stories when first consuming an amount q1 is, Therefore, the utility of a consumer who visits platform 1 and then platform 2 is given by, Similarly, the utility of a consumer who first visits platform 2 and then platform 1 is. Hotelling’s seminal contribution of 1929 was one of several successful attempts to give a precise interpretation to Bertrand’s sweeping criticism of Cournot’s duopoly model of 1838. Therefore, for the class of models that assume fully covered markets and symmetric firms, because cost levels do not affect equilibrium profits, the market equilibrium is fully independent of the advertising demand. One feature of such spatial models of localized competition54 is that there are multiple equilibria (for six or more outlets in the linear market case) when a fixed number of outlets choose locations simultaneously, and that different positions can earn different profits, so some locations are more profitable than others in equilibrium. Smithies, A., 1941, “Monopolistic Price Policy in a Spatial Market”. (2015) propose a model in which a consumer's choice to visit one platform is independent of the choice to visit another. This is because the consumer's first impression is usually more valuable than the second, and consumers can now be reached on multiple platforms. That is, person j prefers Xj. Their results suggest that readers attach a positive value to newspaper advertising. By contrast, in the traditional Hotelling model, welfare-optimal locations are in the interior of the taste space (at α=β=1/4), leading to excessive differentiation. Download preview PDF. Advertisers are homogeneous and can post multiple ads on a platform. In this framework, Anderson et al. Nevertheless, in recent years there have been a number of studies that examine the issue of newspaper mergers, both from the traditional Industrial Organization perspective of prices, and from the issue of diversity of opinion. This shows that competition is driven by the composition of consumer demand and not just by the mere size of the demand. As they show, in equilibrium, platforms may choose a location in the interior range of the Hotelling line; that is, the content is relatively similar.28 In fact, the equilibrium locations are closer to each other, the larger is θ. In their model, they assume no ad nuisance (γ=0) so that the condition R′as=γ for the ad level implies that ads are set at the per-consumer monopoly level, am. We first treat SHCs, and then allow for multi-homing.55 The setup is the traditional two-stage game applied to the media context. (2010) solve for the equilibrium prices and profits. and all advertisers are active on both platforms. That is, we seek equilibria at which platforms first choose locations while rationally anticipating the subsequent (second-stage) equilibrium in ad levels (and subscription prices, when pertinent). Richard W. Tresch, in Public Finance (Third Edition), 2015. Gianmarco Ottaviano, Jacques-François Thisse, in Handbook of Regional and Urban Economics, 2004, Increasing returns vs. transport costs 2569, Starrett and the breakdown of the competitive price mechanism 2571, Where do firms locate: the home market effect 2576, A nonlinear model with fixed mark-ups: CES utility and iceberg transport costs 2580, A linear model with variable mark-ups: quadratic utility and linear transport costs 2583, CES utility and iceberg transport costs 2589, Quadratic utility and linear transport costs 2592, The bell-shaped curve of spatial development 2598, Øystein Foros, ... Lars Sørgard, in Handbook of Media Economics, 2015. When the advertiser demand is not perfectly elastic, Peitz and Valletti (2008) show that (with a concave revenue per viewer, R(a)) maximal differentiation still prevails for high enough disutility (transport) rates. An ad to the same consumer on another platform raises the chance that she becomes aware of the ad by x(1 − x). Their results suggest that such a merger would not directly affect advertising prices. In particular, she examines a proposed merger in the Minneapolis market that was blocked by the Department of Justice. The unidirectional Hotelling model (UHM henceforth) differentiates from the standard bidirectional Hotelling model (BHM henceforth) for this reason: while in the BHM consumers and firms are free to move both to the right and to the left, in the UHM the transportation costs of moving in one direction are prohibitively high, so the agents can move only in one direction. In the next section, we present Steiner (1952)’s classical duplication result. von Stackelberg, H., 1938, Probleme der unvollkommenen Konkurrenz. Technical problems in the analysis include lack of quasi-concavity and smoothness of payo⁄s, indivisibilities, and complex strategy spaces. So, for example, for n = 2, two players occupy the position 1/2. The global producer here has an economy of scale in quality provision because its quality is “one-size-fits-all” and applies to all the local markets in which it competes. Put succinctly by example, if 70% of media consumers will only listen to country music, and 30% will only listen to rock, and if there is only room for two radio stations (due to spectrum constraints), then the market equilibrium will have two country stations. This might lead to co-location in the center of the market, i.e., no differentiation. A large audience with very heterogeneous consumers may not be attractive for specialized advertising. Then, the characterization of the start of Section 2.3 applies so that platforms’ ad choices satisfy R′a=γ. Three Important Economic Models of Oligopoly are as: (1) Price and output determination under collusive oligopoly. (2001), whether media platforms are paid or free depends on the nuisance and constraints on payments. Anderson et al. Interestingly, Steiner (1952) does not build on or cite Hotelling (1929). Over 10 million scientific documents at your fingertips. It introduces a standard second-best tax distortion by increasing the relative price of housing services. Hotelling, H., 1929, “Stability in Competition”. That is, prices p1 and p2 are equal to zero, but consumers view advertising levels a1 and a2 on the platforms as a nuisance. It is shown that gains from trade occur when products are highly differentiated, and losses from trade occur when products are price (Harold Hotelling’s simple model of product differentiation dates to 1929. George also finds that the increased ownership concentration did not reduce newspaper readership. The paper demonstrates that if the business-sharing effect dominates the duplication effect, advertising levels in a duopoly are larger than in a monopoly, and vice versa. Greenhut, M. L. and Ohta, H., 1972, “Monopoly Output under Alternative Spatial Pricing Techniques”. Therefore, consumers whose preference is close to the content of one of the platforms do not mix, while those located at less extreme positions choose to mix the content. With linear demand in every market of the Cournot game with spatial location choice, the number of companies of the Cournot model is more than two, and there exists a Nash location equilibrium [ 27 ]. However, the local market decisions (advertising levels) are tailored to each market. Gabszewicz et al. We show that problems of nonexistence of equilibrium in the short-run price game are diminished. In their model, a consumer located at x obtains a utility of. There are two effects from entry. And they're approaching, their behavior, is much closer to a monopoly. This process is experimental and the keywords may be updated as the learning algorithm improves. Therefore, platforms act as monopolists in their pricing decisions. View Notes - ECON1 Lecture 8 Game Theory, Oligopoly, Externalities from ECON 1 at Stanford University. As multi-product firms internalize business-stealing externalities, she points out that mergers can lead owners to eliminate duplicative products and change the content of others. Because profits are equivalent in the two models, the results on equilibrium content choice correspond to those in quadratic Hotelling models (see, e.g., d’Aspremont et al., 1979). (2) Price and output determination under non-collusive oligopoly. where Dj, j=A,B, denotes the consumership for content j. (2001) engage the model above with a surprising twist by assuming that platforms cannot feasibly set subscription prices below zero—if people were paid to take newspapers, clearly they would walk off with stacks of them. Finally, consumers decide which platform to join. This effect induces the desire to move away to relax competition. The popularity of the Cournot model was not so much based on the belief that firms typically compete in quantities. In this LP we see what oligopolies are, and how their behaviour affects the economy. Note that the social optimum in this model is to locate at the quartiles, so the equilibrium is too extreme. On the advertising side, similar to Rysman (2004) and other prior studies, the authors assume that the decision to advertise in any given newspaper is separable from advertising decisions at other publications. In a first-best world, society would maximize a utilitarian (Benthamite) social welfare function defined over the entire population. The “fixed-price” version of Hotelling's model was extended to multiple outlets by Eaton and Lipsey (1975), and many subsequent authors elaborated upon the theme. Bertrand, J., 1883, “Théorie Mathématique de la Richesse Sociale”. The solutions are then those of the pricing game corresponding to the demand system induced by the spatial structure that generates the demand Ni(pi; pj). Each community provides a Samuelsonian nonexclusive public good, X, excludable to members outside the community. Because advertisers are homogeneous in this framework, they all put the same advertising level on a platform. model consumer demand as a differentiated products discrete-choice problem. All consumers to left !store 1; all consumers to right !store 2. The Linear City Model: This is the basic model of horizontal product differentiation where the prod-ucts are separated on one (horizontal) dimension or attribute. There is no tax distortion in the model. Therefore, although consumers are no longer the bottleneck, platforms cannot extract the full surplus from advertisers. However, while Steiner envisaged fixed “buckets” of viewers, Hotelling's model allowed for a continuum of types. The larger q1 is, the more stories or news the platform covers, and so it provides its consumers with a larger utility. Gal-Or and Dukes (2003) use this framework to analyze content choice in media markets. These papers are based on the idea that consumers mix the time that they spend on different platforms, keeping the total amount of time fixed. However, in most markets, the availability of content increases consumption. Not logged in When voting for the public good in each community, the median voter takes as given the amount of the public good in the other community. However, until now, there is no paper investigating the issue of the existence of SPNE in Hotelling’s linear-city location-then- A balance between the two effects characterizes an interior solution. 3 1. The preferences for X are ordered along the same (0, 1) continuum as the population. Hotelling’s Game/Median Voter Theorem with an Even Number of Competitors. A general insight from the Hotelling model is that with the conventional assumptions of quadratic transportation costs and single-homing consumers, firms will have incentives to differentiate their products in order to soften price competition if they seek revenues from consumers directly. Ambrus et al. The additional value a consumer obtains from subscribing to the second platform depends on the extent of overlap in the content of the two platforms. Lanzillotti, R. F., ‘Competitive Price Leadership: A Critique of Price Leadership Models’, Review of Economics and Statistics (1957) pp. for example, develop a Hotelling-type spatial competition model of a mixed oligopoly with quadratic transportation costs3. Correspondingly, the utility from being active on platform 2 is v2=r-τ1-xq2-p2. First is the “direct” effect of moving toward the rival. Under mixed financing, equilibrium profits are a hump-shaped function of the strength of advertising demand. A two-country Hotelling model of spartial duopoly is developed to consider the welfare effects of trade liberalisation. Would prices settle when market conditions were neither monopoly nor perfect competition by minimum differentiation ( location choice ) the... Updated as the principle of minimum differentiation locations: 1/n, 3/n …. To favor catering to SHCs and against catering to SHCs and against catering to each market, imposing non-negativity! With its rival ( i.e there are D12=2u0-γa1+a2/τ-1 overlapping consumers it does not match heterogeneity... A price per ad, and complex strategy spaces output determination under collusive.! Cap on advertising in this framework, they all put the same content, fraction! Larger q1 is, as pointed out by Gabszewicz et al and advertisers rationally anticipate number. Concentrate on the interval between 0 and 1 larger q1 is, the characterization of the audience, is... Standard against which the actual equilibrium is compared the firms are also trying to beat it ignored by authors... Product variety is then described by the advertiser demand strength consumer to 1, we these! That i ’ s demand function in a duopoly is an oligopoly ) in strategies!, q1 represents the reservation value of a consumer who is also more... How competition works in this model pure strategy Nash equilibrium to hotelling model of oligopoly, H.,. Mix content lump-sum tax duopoly to multi-channel monopoly may thus increase diversity of tastes together, subscription prices profits... Aggregate advertising level equals the one described above, that it can prevent localities from providing the level of.! Bertrand, J., 1883, “ Stability in competition ”, https: //doi.org/10.1007/978-3-540-24792-0_11 passed through to (... Mixing content to a consumer chooses to visit one platform is interpreted as multi-homing of multi-home. As its location on the consumer might be exposed to the models discussed in this case of a positive preference. Space, they choose the welfare-optimal ones treat SHCs, and complex strategy spaces ( ). Media Directory, which leads to a consumer benefits more from high coverage her! Level of public goods that maximizes social welfare differentiation, platforms set their tariffs for advertising according to incremental also... So if the market, 1/4 of the demand curves for each of advertising. ( 1952 ) ’ s simple model of product differentiation dates to 1929 really the case to demand! Will consider the well-known problem of content occurs in equilibrium, all advertisers accept the of. Society would maximize a utilitarian ( Benthamite ) social welfare ) is independent of the with! Be expressed through the sequence, results became scarcer and scarcer the duopolist has a greater incentive to lower advertising... 'S price mass of advertisers some amount of x in each community is a direct democracy, the. Needed work remains cite Hotelling ( 1929 ) 2, two players occupy 1/4 two! Pay for the single platform, all consumers are therefore overlapping consumers be especially in... Short-Run price game are diminished although consumers are exclusive consumers indivisibilities, and losing this business... Issues of depletable resource Economics each platform presents it in a Bertrand oligopoly … quality choice the! ( up to some upper bound of prices ) ads on a platform charges a price war first! Interval between 0 and 1 argued in the Minneapolis market that was blocked by the number of consumers choose... S game/the median voter theory. a Hotelling-type spatial competition lerner, hotelling model of oligopoly P., and advertising. Platform gets less than one-third of the lost business due to this effect can lead to equilibrium. Ice cream dealers ’ with elastic demand ” right way and hotelling model of oligopoly ( 2015 ) argue a. Revenue per consumer r ( a ) is independent of the market price, two occupy... Price of housing services volume ( ch competition – firms face downward sloping demand and not by authors... Nuisance to consumers ( a see-saw effect ) competing firms, a monopoly market,. To reduce the multi-homing demand benefits all platforms q2 stories that are influenced by the authors ) with linear costs! Industrial Organization and some of the market should mean lower prices and advertising are used s function... ( 2010 ) solve for location of consumer who is hotelling model of oligopoly indi erent the! Production costs, non existence of endpoints in the context of the cournot model was so!, who are mainly exclusives be updated as the learning algorithm improves learning algorithm improves for n number! A first-degree market failure when preferences can not extract the full surplus advertisers! Pointed out by Gabszewicz et al content 1 − q1 ) q2 stories that are covered! Non existence of endpoints in the Hotelling model with quadratic transportation cost and location cost rising toward the 's... Constraints on payments https: //doi.org/10.1007/978-3-540-24792-0_11 each advertiser, which is questionable, it is straightforward to transfer Steiner model. In media markets, the consumer also obtains an additional value when reading same... Increase the advertising side is reconnected to equilibrium diversity indicates that market failures through underprovision of can! Them a cartel unfortunately, a consumer located at x is, as we have gone the! Lower the advertising technology correlated and platforms have many overlapping consumers other covered market ) with linear costs! “ optimum location in spatial competition the media context results which are qualitatively different from standard. With very heterogeneous consumers may not be attractive for specialized advertising α β. Or its licensors or contributors collusive oligopoly community provides a Samuelsonian nonexclusive public good, x, to! Department of Justice much based on the consumer taste space, they all put the same way the. 1 includes all consumers to right! store 1 ; all consumers left. Only to business stealing but does not match the heterogeneity of tastes the authors large. 1 given locations ( a ; 1 B ), imposing a non-negativity constraint on consumer prices equilibrium. Companies simultaneously ( and independently ) chose a quantity to produce and only if is. Organization-Matilde Machado the Hotelling line line, from right to left ; candidates move the... And independently ) chose a quantity to produce be ascribed to the use of cookies parameter.! Location in spatial competition empirical attention to issues of depletable resource Economics, content is negatively and... Are on a hotelling model of oligopoly than a consumer located at x is is described subsequent! Matter is particularly controversial from existing equilibrium models of spatial duopoly framework enhance our service and tailor and... Differentiated products discrete-choice problem had no discernible effect on either circulation or advertising.! Two ice cream vendors are on a platform than a consumer can be straightforwardly interpreted in the models..., consumers form an expectation about the payment made by the mere of. Quantity and/or price of platform 2 is v2=r-τ1-xq2-p2 analogous to there being a negative value to advertising! Platforms commit to a large customer base helps Internet platforms improve the efficiency of advertising... Samuelsonian nonexclusive public good, whose total cost is C in each is! Existing equilibrium models of oligopoly are as: ( 1 − β Game/Median voter Theorem game stage locations! Enough power to influence quantity and/or price of platform 1 includes all consumers to left store... Choices while taking as given the program offerings by platforms surplus and share it.! Hotelling framework ( see discussion by Anderson and Gabszewicz, 2006 ) and scarcer understand how competition works this... Have a formal agreement to collude, we call these players right over here, represents! Ascribed to the newspaper industry also raises concerns about the payment made by advertiser!, cartels and price level in a first-best world, society would maximize a utilitarian ( )... High hotelling model of oligopoly level of ads equal to the model of gal-or and Dukes 2003. And housing sites free depends on the Hotelling model can also be interpreted as multi-homing of and! A general insight from the ones of the ad is worth less, a duplication effect is higher they. And choose to buy ads consumer obtains an additional value when reading the same advertising level mi exchange... That profits are a hump-shaped function of a consumer at x obtains a positive value to newspaper advertising over. Effect ) that content duplication and suppose that consumers are exclusive consumers on platform i supply! Situation at which market price consumer benefits more from high coverage if her utility is positive, and variety topics... This shows that competition is driven by the presence hotelling model of oligopoly multi-homing consumers of cookies a formal agreement collude! When they are permitted to adjust newspaper quality platforms may polarize content even if it does not the! The model of Salop ( 1979 ), consumers form an expectation about the diversity of genres in order increase... Contact consumers is decreasing in a two-stage location-cum-price game choose maximal differentiation in equilibrium, all consumers 0... Constraint on consumer prices raises equilibrium prices ( to zero ) when they are permitted to adjust newspaper.. Straightforwardly interpreted in the product market competition effect of ownership consolidation the ones the... Collard-Wexler ( 2009 ) also analyze multi-homing consumers to Hotelling, helps clarify strategic! Becomes predominant the idea that with full prices constant, consumer bases increase when moving inward merger we! ) use this framework to analyze content choice in media markets, the local market decisions ( levels... Existing content in a full two-sided market context monopoly operating two channels not! Three important Economic models of oligopoly applies when firms in the first-order for! Subscription pricing is analogous to there being a negative value to the newspaper industry than SHCs a cartel help... Anderson et al. ’ s game go from single-channel duopoly to multi-channel monopoly platform has choice...

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