Location Choice of a Partially–Private Monopoly Supplier

This paper analyzes the location choice of an upstream monopolist who supplies input to asymmetric duopoly firms in a downstream market. The monopolist is partially private, in that it cares not only about its profit maximization but also about the survival of the downstream firms. Based on the Hotelling model, we find that the monopolist is always attracted to locate closer to the efficient downstream firm. In particular, when the efficiency difference between the two downstream firms is not too high, such that no firm is driven out of the market, the monopolist locates at a distance of 1/6 from the efficient firm in the line segment of unit length. Finally, considering the downstream firms’ survival, we show that the upstream monopolist charges a higher input price on the efficient firm. This study may be relevant to the product differentiation framework, in which firms can benefit from producing goods that are close to the preference of high-type consumers; to the pharmaceutical industry, in which pharmacy companies must cover a broad market segment; or to the policymaking process, in which policymakers may have an incentive to make a policy preferred by a particular group of the society. JEL Classifications: D42, L12, L230

Planned Obsolescence with Network Effects

This paper appeals to the interplay between network effects and quality to justify the use of planned obsolescence by well-settled firms. We propose a simple contagion model to analyze an asymmetric duopoly market where an incumbent firm benefits, at least initially, from the first‐mover advantages attributed to network industries, while the entrant offers a product with higher quality. The simpler version of the model describes the evolution of the market shares, showing that network effects can overtake the quality effect if the market is sufficiently small. If the market lasts enough, network effects end up enhancing the effect of quality and the entrant gets a higher market share. If the incumbent can set the size of the market by launching a new product every so often, the model provides a rationale for the use of planned obsolescence from a strategic point of view. Social efficiency is then challenged.

An Asymmetric Duopoly Model of Price Framing

This note considers an asymmetric duopoly model of price-frame competition in homogeneous product markets. The firms choose simultaneously prices and price formats, and frame differentiation limits price comparability leading to consumer confusion. Here, one firm is more salient than its rival and attracts a larger share of confused consumers. In duopoly equilibrium, the firms randomize on both prices and frames, make strictly positive profits, and pricing is frame-independent. However, the prominent firm sets a higher average price and charges the monopoly price with positive probability. Higher prominence boosts expected profit for both the industry and the salient firm but may harm the rival’s expected profit.