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Session 4_Competitions_Hotelling

The document discusses competitive scenarios among major companies in various industries, including Ford and GM in electric vehicles, Amazon and Flipkart in e-commerce pricing, and Indigo, Spicejet, and Air Asia in airfare pricing post-lockdown. Each scenario outlines potential profits based on different strategic decisions regarding capacity and pricing. Additionally, it touches on concepts like Bertrand competition and the implications of differentiation in pricing and location strategies.

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MOHD Salman
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19 views14 pages

Session 4_Competitions_Hotelling

The document discusses competitive scenarios among major companies in various industries, including Ford and GM in electric vehicles, Amazon and Flipkart in e-commerce pricing, and Indigo, Spicejet, and Air Asia in airfare pricing post-lockdown. Each scenario outlines potential profits based on different strategic decisions regarding capacity and pricing. Additionally, it touches on concepts like Bertrand competition and the implications of differentiation in pricing and location strategies.

Uploaded by

MOHD Salman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Competitions

and Spatial
Model
Ford and GM with EVs
• Ford and General Motors are deciding whether to expand the installed
production capacity of electric vehicles or to maintain it.
a) If GM and Ford both maintain their capacity, GM gets a profit of $4 Billion and
Ford gets a profit of $3 Billion
b) If GM maintains and Ford increases their capacity, GM gets a profit of $2 Billion
and Ford gets a profit of $4 Billion
c) If GM expands and Ford maintains their capacity, GM gets a profit of $2 Billion
and Ford gets a profit of $4 Billion
d) If both GM and Ford expand their capacity, GM gets a profit of $3 Billion and
Ford gets a profit of $5 Billion.
What will both companies do?
Flipkart and Amazon: Sales and Discounts
• Consider a pricing game between two e-commerce firms, Amazon and
Flipkart.
• Being the only two players in the market, if both of them keep the prices
high, both get a profit of $ 4 billion each.
• If one keeps the price low and the other keeps it high, the one keeping it
lower will get a profit of $ 6 Billion and the one with higher price will get
a profit of $ 1 Billion.
• If Both keep the price low then both get a profit of $ 2 Billion.
Airfare Pricing Post Lockdown: Three Persons
Game
• Indigo, Spicejet and Air Asia are deciding on the airfares after a
lockdown as flights are resumed. Each operator can decide to maintain
the fare or to increase the fare to cover the limited capacity operation.
Air Asia Air Asia

Maintains Increase

Spicejet Spicejet

Maintain Increase Maintain Increase

Maintain 5,5,5 6,-10,6 Maintain 6,6,-10 15,-7,-7


Indigo Indigo
Increase -10,6,6 -7,-7,15 Increase -7,15,-7 10,10,10
Bertrand Competition with Differentiated Goods
Firm 1 Firm 2

• MC = 0 • MC = 0
Spatial Model
Hotelling Linear City
The sellers are price takers and can’t decide on
them: Too little differentiation
What about the median voter
theorem?
Firms choose Price and Location, Consumers have
Quadratic Transportation Costs: Too much differentiation
Social Optimum
Thank you
for your patience

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