The Hotelling model is widely used to analyze platform competition in two-sided markets. Under standard assumptions, namely, sufficiently high stand-alone utility and strong product differentiation relative to cross-group externalities, the model yields a competitive equilibrium with two active platforms. Relaxing either assumption typically leads to corner outcomes such as market tipping or uncovered markets. This paper shows that, when the full parameter space is analyzed, an additional class of equilibria emerges: market-sharing kinked-demand equilibria (M & eacute;rel and Sexton, 2010), at which platforms soften competition and replicate a collusive outcome. These findings extend the traditional two-sided Hotelling framework by highlighting market environments, common in digital settings, in which cross-group externalities outweigh both differentiation and stand-alone utility.
This paper proposes a model of evolution of networks of cooperation where networks form and evolve through repeated pair-wise interactions between players in a finite population. While the baseline incentive structure of these interactions is that of a coordination game, these incentives are transformed by additional network effects based on the assumption that the benefit to any player from a mutually cooperative relationship is enhanced, over its base value, by a factor of their trustworthiness as perceived by the interacting partner, through network-based channels. In the presence of a set of altruists, the evolution of networks of cooperation is analyzed through repeated interactions between myopically best-responding players who have varied costs of cooperation.
This study considers common ownership among public and private firms in a mixed oligopoly market and examines an endogenous choice game of managerial delegation contracts. We find two asymmetric delegation equilibria: (i) when common ownership is low, the public firm does not delegate while the two private firms do; and (ii) when common ownership is high, the public firm delegates while only one private firm delegates. We also identify a symmetric delegation equilibrium where (iii) all firms delegate in intermediate cases. We demonstrate that when common ownership is high enough, an asymmetric delegation equilibrium may solve the prisoner's dilemma problem between the private firms, leading to a reduction in social welfare. We further discuss policy implications for public firm management, such as privatization policies, welfare-oriented delegation contracts, and non-public offerings in the stock market.
This paper proposes a menu-cost theory of tipping. When firms face costs of changing posted prices, voluntary tips provide a noisy but informative signal of whether current prices are "too low" or "too high." The firm adjusts its price only when tip deviations exceed an information-dependent threshold, generating a time-varying inaction band. The framework explains why tipping is common in volatile, service-intensive industries but rare in standardized chains with rich alternative telemetry. Unlike existing models based on norms or reciprocity, this approach requires only that average tips increase weakly with perceived surplus for the consumers.
This paper characterizes the behavior of a backward inducting first mover (the decision maker) in a two-stage extensive form game. Having limited knowledge of her fellow player's preference, the decision maker maps each outcome to its mirror image and infers the second mover's behavior using her own preference. The axioms can be used to test whether such a decision-making procedure is at work. The decision maker's preference over the outcomes and the mirror-image mapping she applies are both identified from her preference over actions in the first stage of the game.
