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Cournot Equilibrium In A Model Of Hardware And Software Manufacturers’ Interaction

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  • Vladimir I. Soloviev

    (State University of Management Moscow)

  • Natalia A. Iliina

    (State University of Management Moscow)

  • Marina V. Samoyavcheva

    (State University of Management Moscow)

Abstract

A model of interaction between hardware vendors, Intel and AMD, and developers ofWindows and Linux operating systems is suggested. Intel and AMD both maximize profits forming atraditional oligopoly, while Microsoft and the community of Linux developers form a mixedduopoly, in which only the first party maximizes its profit. We consider a Cournot situation, wheneach of the profit-maximizing suppliers sets the price based on available market information onother players’ products prices in the previous time moment, and assuming the cross-priceelasticities to zero. At the Cournot equilibrium, an Intel-based PC running Windows is 5 times moreexpensive than AMD-based PC running Linux; an Intel CPU costs 2 times more than AMDprocessor; Windows license is 1,5 times more expensive than Intel processor; and the profit of Intelis 4 times greater than the profit of AMD, while Microsoft has just 12,5% greater profit than Intel.

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Bibliographic Info

Article provided by Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia in its journal Annales Universitatis Apulensis Series Oeconomica.

Volume (Year): 1 (2009)
Issue (Month): 11 ()
Pages: 4

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Handle: RePEc:alu:journl:v:1:y:2009:i:11:p:4

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Keywords: complementors; complements; co-opetition; Cournot equilibrium; pricing.;

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  1. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
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  5. Keith M. Chen & Barry Nalebuff, 2006. "One-Way Essential Complements," Levine's Bibliography 321307000000000669, UCLA Department of Economics.
  6. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 159-187, February.
  7. Ramon Casadesus-Masanell & Barry Nalebuff & David B. Yoffie, 2007. "Competing Complements," Working Papers 07-44, NET Institute, revised Nov 2007.
  8. Ramon Casadesus-Masanell & Pankaj Ghemawat, 2006. "Dynamic Mixed Duopoly: A Model Motivated by Linux vs. Windows," Management Science, INFORMS, vol. 52(7), pages 1072-1084, July.
  9. McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 371-83, May.
  10. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
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