Jeitschko, Thomas D. Kim, Soo Jin Yankelevich, Aleksandr
DICE Discussion Paper 286
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.
Hotelling Model First Mover Advantage Two-Sided Market