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Spatial competition and social welfare in the presence of non-monotonic network effects

Research output: Working paperDiscussion paper

Author(s)

Luca Savorelli, Jacob Seifert

School/Research organisations

Abstract

We study a spatial duopoly and extend the literature by giving joint consideration to non-monotonic network effects and endogenous firm location decisions. We show that the presence of network effects (capturing, for example, in-store rather than online sales) improves welfare whenever the total market size is not too large. This effect is lost if network effects are specified in a monotonic fashion, in which case isolating consumers from one another always reduces welfare. We also provide a new rationale for a duopoly to be welfare-preferred to monopoly: in large markets, splitting demand between two firms can reduce utility losses due to crowding.
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Details

Original languageEnglish
Place of PublicationSt Andrews
PublisherUniversity of St Andrews
Number of pages28
Publication statusPublished - 2 Jun 2017

Publication series

NameSchool of Economics and Finance Discussion Paper
PublisherUniversity of St Andrews
No.1615
ISSN (Print)0962-4031
ISSN (Electronic)2055-303X

    Research areas

  • Product differentiation, Network effects, Welfare

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