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Endogenous product substitutability strategy under duopoly

Author

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  • Chan Wang
  • Pu‐yan Nie
  • Ting Cui

Abstract

This article develops endogenous product substitutability theory. With game theory approach, the effects of endogenous product substitutability are characterized. First, equilibrium under endogenous product substitutability is achieved. Second, product substitutability strategy promotes price, total outputs, and social welfare. Outputs under high‐efficiency firm's product substitutability are compared with those under low‐efficiency firm's product substitutability. Third, compared with the other cases, joint product substitutability improves price difference. Finally, the outputs of all firms under endogenous product substitutability are shown to be lower than the social optimality level. The policy implication is to encourage firms investing product substitutability.

Suggested Citation

  • Chan Wang & Pu‐yan Nie & Ting Cui, 2019. "Endogenous product substitutability strategy under duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 40(6), pages 623-632, September.
    • Handle: RePEc:wly:mgtdec:v:40:y:2019:i:6:p:623-632
    DOI: 10.1002/mde.3033
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    Cited by:

    1. Junlong Chen & Xinran Xie & Chaoqun Sun & Li Lin & Jiali Liu, 2022. "Optimal trade policy and welfare in a differentiated duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 3019-3043, October.
    2. Pu‐Yan Nie & Xu Xiao & Chan Wang & Ting Cui, 2020. "Innovation subsidy under duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(3), pages 362-370, April.

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