Product boundary, vertical competition, and the double mark-up problem

Leonard K. Cheng, Jae Nahm

Research output: Contribution to journalArticle

11 Citations (Scopus)

Abstract

We develop a model in which a main product (called product A) provides a performance quality z by itself, whereas a complementary product (called product B) is useless by itself but enhances the main product's performance quality to q > z. This asymmetric complementarity gives rise to the following results. First, if z is relatively small, then firms A and B behave as if the products are symmetrically complementary with the usual double marginalization problem. Second, if z is sufficiently large, then firms A and B price their products as if they are independent. Third, over a certain range of intermediate z, no pure-strategy Nash equilibrium exists.

Original languageEnglish
Pages (from-to)447-466
Number of pages20
JournalRAND Journal of Economics
Volume38
Issue number2
DOIs
Publication statusPublished - 2007 Jun 1
Externally publishedYes

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ASJC Scopus subject areas

  • Economics and Econometrics

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