Does the absence of competition in the market foster competition for the market? A dynamic approach to aftermarkets
AbstractIn this paper, we investigate dynamic price competition when firms strategically interact in two distinct but interrelated markets: a primary market and an aftermarket, where indirect network effects arise. We set up a differential game of two-dimensional price competition and we conclude that the absence of price competition in the aftermarket (competition in the market) fosters dynamic price competition in the primary market (competition for the market). We also investigate the impact of network sizes on firms' prices in the primary market concluding that, in equilibrium, larger firms have incentives to compete more fiercely for new "uncolonized" consumers.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2008033.
Date of creation: 01 May 2008
Date of revision:
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dynamic competition; differential games; Linear Markov Perfect Equilibrium; aftermarkets; network effects.;
Other versions of this item:
- Didier, LAUSSEL & Joana, RESENDE, 2008. "Does the absence of competition in the market foster competition for the market ? A dynamic approach to aftermarkets," Discussion Papers (ECON - DÃ©partement des Sciences Economiques) 2008021, Université catholique de Louvain, Département des Sciences Economiques.
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-11-25 (All new papers)
- NEP-COM-2008-11-25 (Industrial Competition)
- NEP-IND-2008-11-25 (Industrial Organization)
- NEP-MIC-2008-11-25 (Microeconomics)
- NEP-NET-2008-11-25 (Network Economics)
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