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Entry into Complementary Good Markets with Network Effects

Author

Listed:
  • Gastón Llanes

    (Business School, Pontificia Universidad Católica de Chile, Santiago, Chile)

  • Andrea Mantovani

    (Department of Economics, University of Bologna, 40126 Bologna, Italy)

  • Francisco Ruiz-Aliseda

    (Business School, Pontificia Universidad Católica de Chile, Santiago, Chile)

Abstract

Network effects and complementarities are salient features of the digital economy. We examine whether complementarities can help a firm enter a market with strong network effects and incumbency advantages. We provide conditions under which bundling the network good with a complementary good can be an optimal entry strategy, and we show that this strategy should not be subject to anticompetitive concerns (in both the short and the long term). When product complementarity is weak enough, we also show that an entrant may prefer a more cooperative approach not based on bundling but rather on extending the complementarity benefits to the incumbent’s network good.

Suggested Citation

  • Gastón Llanes & Andrea Mantovani & Francisco Ruiz-Aliseda, 2019. "Entry into Complementary Good Markets with Network Effects," Strategy Science, INFORMS, vol. 4(4), pages 262-282, December.
  • Handle: RePEc:inm:orstsc:v:4:y:2019:i:4:p:262-282
    DOI: 10.1287/stsc.2019.0088
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    Cited by:

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    3. Constance E. Helfat & Aseem Kaul & David J. Ketchen & Jay B. Barney & Olivier Chatain & Harbir Singh, 2023. "Renewing the resource‐based view: New contexts, new concepts, and new methods," Strategic Management Journal, Wiley Blackwell, vol. 44(6), pages 1357-1390, June.
    4. Li, Quan & Zha, Yong & Dong, Yu, 2023. "Subsidize or Not: The Competition of Credit Card and Online Credit in Platform-based Supply Chain System," European Journal of Operational Research, Elsevier, vol. 305(2), pages 644-658.
    5. Keran Zhao & Yingda Lu & Yuheng Hu & Yili Hong, 2023. "Direct and Indirect Spillovers from Content Providers’ Switching: Evidence from Online Livestreaming," Information Systems Research, INFORMS, vol. 34(3), pages 847-866, September.

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    More about this item

    Keywords

    network effects; bundling; complementarities; entry; product compatibility; network compatibility;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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