Scandinavian Working Papers in Business Administration
Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science
No 2010/16: Hotelling competition with multi-purchasing
Simon P. Anderson (), Øystein Foros () and Hans Jarle Kind ()
Additional contact information
Simon P. Anderson: Dept. of Economics, University of Virginia, Postal: University of Virginia, Department of Economics, PO Box 400182, Monroe Hall, Charlottesville, VA, USA
Øystein Foros: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway
Hans Jarle Kind: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway
Abstract: We analyze a Hotelling model where consumers either buy one out of two goods (single-purchase) or both (multi-purchase). The firms’ pricing strategies turn out to be fundamentally different if some consumers multi-purchase compared to if all single-purchase. Prices are strategic complements under single-purchase, and increase with quality. In a multi-purchase regime, in contrast, prices are strategically independent because firms then act monopolistically by pricing the incremental benefit to marginal consumers. Furthermore, prices can decrease with quality due to overlapping characteristics. Higher preference heterogeneity increases prices and profits in equilibrium with single-purchase, but decreases them with multi-purchase.
Keywords: Multi-purchase; incremental pricing; content competition
JEL-codes: G00
33 pages, December 11, 2010
Full text files
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