Journal article

Horizontally differentiated market makers

Simon Loertscher

JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY | BLACKWELL PUBLISHING | Published : 2007

Abstract

I analyze a model of competition between two market makers who are located at the opposite ends of the Hotelling line, both of which are also occupied by a search market. Buyers and sellers are uniformly distributed between the two market places, yet can only trade at one of them. In equilibrium, market makers net a positive profit and trade with buyers and sellers close to them, while buyers and sellers further away participate in search markets. Interestingly, a duopolistic market maker nets a larger profit than a monopoly because search markets make the quantities market makers trade strategic complements. © 2007, The Author(s) Journal Compilation © 2007 Blackwell Publishing.

University of Melbourne Researchers