Discussion Paper

No. 2015-11 | February 19, 2015
Endogenous Unrestricted Locations in Markets with Network Effects

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.

JEL Classification:

D43, L13, R12

Assessment

  • Downloads: 1258

Links

Cite As

Vitor Ribeiro (2015). Endogenous Unrestricted Locations in Markets with Network Effects. Economics Discussion Papers, No 2015-11, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2015-11


Comments and Questions


Anonymous - Referee Report 1
March 17, 2015 - 08:09

see attached file


Vitor Ribeiro - Reply to Referee Report #1
March 20, 2015 - 15:49

See PDF below


Anonymous - Referee Report 2
March 17, 2015 - 08:10

see attached file


Vitor Ribeiro - Reply to Referee Report #2
March 20, 2015 - 15:51

See PDF below


Anonymous - Invited Reader Comment
April 01, 2015 - 08:32

see attached file


Antonio Brandao - Invited Reader Comment
April 01, 2015 - 08:34

see attached file