We revisit the Hotelling duopoly model with linear transportation costs, introducing network effects and brand loyalty. We show that, while network externalities destabilize prices, the lock-in effect generated by exogenous switching costs, if sufficiently high, eliminates the incentive to undercut, thereby restoring the existence of the pure strategy equilibrium in prices, and the corresponding minimum differentiation principle.
Luca Lambertini, Raimondello Orsini (2013). On Hotelling's Stability in Competition with Network Externalities and Switching Costs. PAPERS IN REGIONAL SCIENCE, 92(4), 873-883 [10.1111/j.1435-5957.2012.00469.x].
On Hotelling's Stability in Competition with Network Externalities and Switching Costs
LAMBERTINI, LUCA;ORSINI, RAIMONDELLO
2013
Abstract
We revisit the Hotelling duopoly model with linear transportation costs, introducing network effects and brand loyalty. We show that, while network externalities destabilize prices, the lock-in effect generated by exogenous switching costs, if sufficiently high, eliminates the incentive to undercut, thereby restoring the existence of the pure strategy equilibrium in prices, and the corresponding minimum differentiation principle.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
