A Note of Caution on Using Hotelling Models in Platform Markets

Düsseldorf Institute for Competition Economics (DICE) Discussion Paper 286

22 Pages Posted: 19 May 2018

See all articles by Thomas D. Jeitschko

Thomas D. Jeitschko

Michigan State University - Department of Economics

Soo Jin Kim

Government of Canada - Bank of Canada

Aleksandr Yankelevich

Federal Communications Commission

Date Written: April 10, 2018

Abstract

We study a Hotelling framework in which customers first pay a monopoly platform to enter the market before deciding between two competing services on opposite ends of a Hotelling line. This setup is common when modeling competition in Internet content provision. We find that standard taken-for-granted solution methods under full market coverage break down, and that in the unique full-coverage equilibrium, the competing service providers set substantially lower prices. Standard methods and prices are restored by giving service providers the first move.

Keywords: Hotelling Model, First Mover Advantage, Two-Sided Market

JEL Classification: D21, D43, L0

Suggested Citation

Jeitschko, Thomas D. and Kim, Soo Jin and Yankelevich, Aleksandr, A Note of Caution on Using Hotelling Models in Platform Markets (April 10, 2018). Düsseldorf Institute for Competition Economics (DICE) Discussion Paper 286, Available at SSRN: https://ssrn.com/abstract=3169510 or http://dx.doi.org/10.2139/ssrn.3169510

Thomas D. Jeitschko

Michigan State University - Department of Economics ( email )

110 Marshall-Adams Hall
East Lansing, MI 48824
United States
517-355-8302 (Phone)
517-432-1068 (Fax)

HOME PAGE: http://www.msu.edu/~jeitschk/

Soo Jin Kim

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Aleksandr Yankelevich (Contact Author)

Federal Communications Commission ( email )

445 12th Street SW
Rm. TW-B204
Washington, DC 20554
United States

HOME PAGE: http://https://aleksyankelevich.com/

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
89
Abstract Views
644
Rank
510,915
PlumX Metrics