Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/107417 
Authors: 
Year of Publication: 
2015
Series/Report no.: 
Economics Discussion Papers No. 2015-11
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
The paper studies indirect network effects in a market composed by two incompatible intermediaries that choose price (short-term issue) in addition to location (long-term issue). The paper first shows that (i) when the network externality is sufficiently weak, only maximum differentiation prevails, (ii) the location equilibrium can be asymmetric for an intermediate level of the network externality, given that the first entrant locates at the city centre while the follower chooses an extreme (niche) positional location and (iii) tipping occurs favouring the leader in the location choice when the intensity of the network externality is sufficiently strong. Moreover, the paper concludes that the likelihood of an asymmetric location equilibrium is higher when there is no mismatch between the product space occupied by consumers and intermediaries. Finally, the author concludes that a penetration pricing strategy conducted by a third intermediary is more successful when the pre-entry condition is not the tipping equilibrium location.
Subjects: 
simple network effect
unconstrained spatial competition
location leadership
JEL: 
D43
L13
R12
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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