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<p>Introducing network externalities into a Hotelling linear market model and assuming a partial market coverage case, we reconsider the profit ranking and social welfare efficiency of Bertrand and Cournot equilibria and the endogenous choice of strategic variables addressed by Singh and Vives (RAND J Econ, 15:546-554, 1984). Focusing on the role of connectivity between network products, we demonstrate the following results. First, firms earn higher (lower) profits under Bertrand price competition compared with Cournot quantity competition if the total effect of network connectivity is sufficiently large (small). Second, firms choose a price (quantity) contract if the degree of connectivity is large (small) under strong network externalities. However, when network externalities are weak, a quantity contract is the dominant strategy. Third, social efficiency is achieved under a price contract if the degree of connectivity is large because of strong network externalities. However, if the degree of connectivity is intermediate because of weak network externalities, a socially inefficient situation arises under a quantity contract. When considering the properties of network products, increasing network effects increase the degree of complementarity of the products. These findings imply that the results of Singh and Vives (1984) do not reverse as a result of network externalities.</p>

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Price and quantity competition in a Hotelling linear market model with network connectivity: in support of Singh and Vives (1984)

  • 期刊论文

  • 发表日期：

    2026年1月29日

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  • Tsuyoshi Toshimitsu

摘要

Introducing network externalities into a Hotelling linear market model and assuming a partial market coverage case, we reconsider the profit ranking and social welfare efficiency of Bertrand and Cournot equilibria and the endogenous choice of strategic variables addressed by Singh and Vives (RAND J Econ, 15:546-554, 1984). Focusing on the role of connectivity between network products, we demonstrate the following results. First, firms earn higher (lower) profits under Bertrand price competition compared with Cournot quantity competition if the total effect of network connectivity is sufficiently large (small). Second, firms choose a price (quantity) contract if the degree of connectivity is large (small) under strong network externalities. However, when network externalities are weak, a quantity contract is the dominant strategy. Third, social efficiency is achieved under a price contract if the degree of connectivity is large because of strong network externalities. However, if the degree of connectivity is intermediate because of weak network externalities, a socially inefficient situation arises under a quantity contract. When considering the properties of network products, increasing network effects increase the degree of complementarity of the products. These findings imply that the results of Singh and Vives (1984) do not reverse as a result of network externalities.