Existence of Equilibrium in A Differentiated Duopoly With Network Externalities

Lambertini, Luca ; Orsini, Raimondello (1998) Existence of Equilibrium in A Differentiated Duopoly With Network Externalities. Bologna: Dipartimento di Scienze economiche DSE, p. 12. DOI 10.6092/unibo/amsacta/4976. In: Quaderni - Working Paper DSE (333). ISSN 2282-6483.
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Abstract

The existence of a pure-strategy subgame perfect equilibrium in qualities and prices is investigated in a duopoly model of vertical differentiation where quality improvements require a quadratic variable cost and network externalities appears in consumer utility. Full market coverage is assumed. We show that the incentive to predate prevents firms to reach a pure strategy noncooperative equilibrium with prices above marginal costs. If network externalities are sufficiently large, a Bertrand equilibrium with zero profits may arise, although the amount of product differentiation is strictly positive. If the weight of network externalities exceeds that of hedonic satisfaction in consumer preferences, then predation is always a dominant strategy.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Lambertini, Luca
Orsini, Raimondello
Keywords
equilibrium existence, vertical differentiation, network externality
Subjects
ISSN
2282-6483
DOI
Deposit date
05 Apr 2016 09:28
Last modified
05 Apr 2016 09:28
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