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Does the absence of competition in the market foster competition for the market? A dynamic approach to aftermarkets

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Author Info
LAUSSEL, Didier
RESENDE, Joana (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

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Abstract

In 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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Publisher Info
Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2008033.

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Date of creation: 01 May 2008
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Handle: RePEc:cor:louvco:2008033

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Related research
Keywords: dynamic competition; differential games; Linear Markov Perfect Equilibrium; aftermarkets; network effects.;

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Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - 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

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This page was last updated on 2009-11-19.

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