Horizontally Differentiated Market Makers

33 Pages Posted: 5 Nov 2007

See all articles by Simon Loertscher

Simon Loertscher

University of Melbourne - Department of Economics

Abstract

I analyze a model of competition between two market makers who are located at the opposite ends of the Hoteling line, both of which are also occupied by a search market. Buyers and sellers are uniformly distributed between the two market places, yet can only trade at one of them. In equilibrium, market makers net a positive profit and trade with buyers and sellers close to them, while buyers and sellers further away participate in search markets. Interestingly, a duo-polistic market maker nets a larger profit than a monopoly because search markets make the quantities market makers trade strategic complements.

Suggested Citation

Loertscher, Simon, Horizontally Differentiated Market Makers. Journal of Economics & Management Strategy, Vol. 16, Issue 4, pp. 793-825, Winter 2007, Available at SSRN: https://ssrn.com/abstract=1027077 or http://dx.doi.org/10.1111/j.1530-9134.2007.00158.x

Simon Loertscher (Contact Author)

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

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