An Analysis of Competition Strategies of Note-taking App Market based on Hotelling Model Theory

Abstract

Responses to COVID-19 have speeded the adoption of digital technologies by several years, resulting in flourishing Note-taking software markets. This paper studies the competition between the two most popular note-taking apps with horizontal differentiations for tablet users: Notability and GoodNotes 5. A modified Hotelling model is used where firms' persuasive advertisements will affect consumers' preferences, hence implicitly changing their location and their overall travel costs. A two-stage process is considered during firm competition when building up models. In the first stage, firms decide on the levels of advertisement of their products in the first stage, then set different prices to maximize profits. By solving this modified model and analyzing the equilibrium profits, the result shows that advertising leads to the same price tactics for the two firms. However, due to the existence of advertising strategies, firms have to bear the cost of this extra advertising competition. Therefore, both firms in the end will receive lower levels of profits compared to the standard model. Indicating that persuasive advertisement has caused Pareto inefficiency, leading to deadweight loss and reduced profit gains for the two firms.