Unfortunately, a property tax is not a lump-sum tax. price Deriving the demand functions, consumers located close to platform 1 will be exclusive consumers of platform 1, while consumers who are located close to platform 2 will be exclusive consumers of platform 2. However, in most markets, the availability of content increases consumption. According to the law of supply and demand, a high level of output results in a relatively low price, whereas a lower level of output results in a relatively higher price. However, under joint ownership of these newspapers, prices will fall because the monopolist will internalize the effect of high prices on both newspapers, in an analog of the traditional Hotelling model where joint ownership raises prices since the marginal consumer provides positive value to firms. Finally, consumers decide which platform to join. As a consequence, platform i can demand only. Through the quality choice of the global platform, there are externalities between local producers even though they do not interact directly. Anderson et al. For instance, access to a large customer base helps Internet platforms improve the efficiency of their advertising services. Hotelling with endogenous locations The maximum di erentiation principle In the Hotelling model described above: d 1 da <0, so that rms want to di erentiate as much as possible! In the context of the Vickrey (1964)–Salop (1979) model with free entry (discussed further below), Choi (2006) shows that, contrasting with excessive entry in pay media, free media may induce insufficient or excessive product diversity. They first develop a Hotelling model of newspaper competition for readers and advertisers which shows that joint ownership of newspapers has no clear effect on prices for either subscribers or advertisers. A key feature of their model is that advertisers value not just the number of readers at a given newspaper, but also their characteristics. In this expression, the price of platform 2 is canceled out. The oligopoly problem was to establish where would prices settle when market conditions were neither monopoly nor perfect competition. Beebe (1977) amended the setup to allow consumers to have second preferences, and christened the Lowest Common Denominator outcome whereby a monopolist could provide a low-tier program type that many types would listen to, while competition could provide more specialist higher-tier programming. It is shown that gains from trade occur when products are highly differentiated, and losses from trade occur when products are Her results show that a reduction in the number of newspaper owners in a market leads to an increase in the degree of separation among the existing newspapers. which equals (10.1), implying that the two formulations are equivalent. She uses county-level circulation data on US newspapers between 1997 and 2005. Hence, intense competition for consumers in the media market results in low advertising levels. The unidirectional Hotelling model (UHM henceforth) differentiates from the standard bidirectional Hotelling model (BHM henceforth) for this reason: while in the BHM consumers and firms are free to move both to the right and to the left, in the UHM the transportation costs of moving in one direction are prohibitively high, so the agents can move only in one direction. Note that the social optimum in this model is to locate at the quartiles, so the equilibrium is too extreme. Hohaus, Konrad, and Thum posit two equal-sized communities, L and H, with just enough housing sites to accommodate the entire population. The monopoly platform can extract the full surplus of advertisers. In this framework, Anderson et al. For lower rates, platforms move closer in equilibrium as the direct effect kicks in. Because advertisers are homogeneous in this framework, they all put the same advertising level on a platform. An ad to the same consumer on another platform raises the chance that she becomes aware of the ad by x(1 − x). Somewhat surprisingly, their results suggest that newspaper publishers make positive margins on the readership side, and in fact higher margins than on the advertising side. For the single platform, all consumers are exclusive consumers. Hence, if multi-homing consumers are present, the problem of content duplication is less severe. Edgeworth, F. Y., 1897, “La Teoria Pura del Monopolio”. Gabszewicz et al. Indeed, oligopoly competition is the leading example of strategic interaction and it should su¢ ce to mention that the equilibrium concept of Cournot is just the modern Nash equilibrium. The original Hotelling model is assumed that consumers are distributed uniformly over a line segment, and travel, at a constant cost per unit, to a firm to buy one unit of a good. The homogeneous-products Bertrand model of oligopoly applies when firms in the oligopoly produce standardized products at same marginal cost. These keywords were added by machine and not by the authors. Equilibrium product variety is then described by the number of products in the market. First of all, there is a direct mathematical equivalence between standard models of price competition and models of ad finance when advertisers all have the same willingness-to-pay, v. To see this, notice that then i’s profit is given by πi=vaiNiγai;γaj: writing pi=γai, we have πi=v/γpiNipipj, so that the profit is proportional to that in an equivalent pricing game. Suppose, for example, that platforms’ contents are relatively similar in the sense that consumers who like the content of platform 1 have a high probability of also liking the content of platform 2. Technical problems in the analysis include lack of quasi-concavity and smoothness of payo⁄s, indivisibilities, and complex strategy spaces. 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