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A biased firm in a market with complementary products. A note on the welfare effects

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  • Clemens Buchen
  • Alberto Palermo

Abstract

We analyse a duopoly setting with complementary products, in which a firm has a bias about its absolute advantage. We show that the bias can internalize parts of the negative externality that the complementarity of goods creates implying a higher producer's surplus. Moreover, we analyse additional conditions, which lead to an increase in the consumer's surplus. Counterintuitively, we show that the presence of a bias can lead to a positive welfare effect.

Suggested Citation

  • Clemens Buchen & Alberto Palermo, 2020. "A biased firm in a market with complementary products. A note on the welfare effects," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(4), pages 448-453, September.
    • Handle: RePEc:bla:scotjp:v:67:y:2020:i:4:p:448-453
    DOI: 10.1111/sjpe.12236
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    References listed on IDEAS

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