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So we all know Amazon is following the path of Netflix regarding tv shows and movies. Both firms are increasing production of film, and now have their own productions.

If we were to categorize this type of competition, would it more closely resemble Hotelling's Model or Cournot?

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It certainly isn't a Cournot scenario. That would require homogeneous products. In fact there's a ton of differentiation between the two products (Amazon prime and Netflix). They have different TV shows, different movies, different documentaries.

I would argue that it is this differentiation that allows them to charge different prices.

Hotelling's law is much more applicable. However I would argue that they do not maintain minimum differentiation. Yes they may share similarities in their web presence, and they may have adopted the strategy of producing content in house; but they also are so different that it is hard to say they are copying each other on almost everything.

Amazon prime offers reduced price shipping, music streaming, and reduced prices on some items on Amazon. Netflix has none of those things.

That said, Netflix includes hard copies of DVDs as rentals included in their subscription, whereas you would have to buy the DVDs on Amazon. So even though some of their business is similar or matching, they mostly represent differentiated products.

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  • $\begingroup$ D'Aspremont et al. (1979) have shown that zero differentiation is actually not an equilibrium in the original Hotelling model under 'most' parameter combinations. (Sorry, I am aware that the word most is ill-defined here without some sort of parameter generation method.) $\endgroup$ – Giskard Feb 28 '17 at 15:34
  • $\begingroup$ Thank you for the reference, that is quite the read! I've always thought somewhat ambivalently about Hotelling's model, due to its seeming difficulties with an Nash equilibrium. In fact, I was a little surprised to see it mentioned in a question. $\endgroup$ – Sean Lambert Feb 28 '17 at 16:09
  • $\begingroup$ Very well said! $\endgroup$ – EconDude Feb 28 '17 at 18:05
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Amazon cloud platform(AWS) is Amazon real cash cow, publishing contents is anything but just leveraging its advantages on cloud usage and contents distribution.

On the other hand, Netflix started as content publisher and online contents streaming. Bare in mind that, Netflix is using AWS as its digital distribution backbone. It is Amazon competitive pricing that cause Netflix decide to move their distribution channel over there.

Overall, this is way out of the league of both economy model you just mentioned, because corporate-competitive co-exist.

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