Asymmetric Complementary Goods Pricing under Sequential Moves
We examine asymmetric complementary good pricing under sequential moves when a price leader (firm A) produces a main product, whereas a price follower (firm B) produces an enhancer for the main product. We show that under sequential moves there is an additional pricing regime pseudo complements" besides the two cases obtained under simultaneous pricing, namely, (i) independent pricing" and (ii) bundling pricing." Under the pseudo complements regime, firm A behaves as if it is an independent monopolist, whereas firm B behaves as if the two products are strict complements. We characterize several properties of the pseudo complements regime. We show that the double mark-up problem persists in the pseudo complement regime. However, when firm A incorporates firm B's function into product A, it alleviates the double mark-up problem. We also explore how the main product's quality improvement affects the follower's R&D incentives.
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Volume (Year): 10 (2010)
Issue (Month): 1 (May)
Pages: 1-22
| Handle: | RePEc:bpj:bejeap:v:10:y:2010:i:1:n:46 |
| Contact details of provider: | Web page: https://www.degruyter.com
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| Order Information: | Web: https://www.degruyter.com/view/j/bejeap |
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- Farrell, Joseph & Katz, Michael L, 2000.
"Innovation, Rent Extraction, and Integration in Systems Markets,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 48(4), pages 413-432, December.
- Farrell, Joseph & Katz, Michael, 2000. "Innovation, Rent Extraction, and Integration in Systems Markets," Department of Economics, Working Paper Series qt15k4v7xb, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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- Joseph Farrell and Michael L. Katz., 2000. "Innovation, Rent Extraction, and Integration in Systems Markets," Economics Working Papers E00-286, University of California at Berkeley.
- Joseph Farrell & Michael L. Katz, 2001. "Innovation, Rent Extraction, and Integration in Systems Markets," Industrial Organization 0012001, EconWPA.
- Farrell, Joseph & Katz, Michael, 2000. "Innovation, Rent Extraction, and Integration in Systems Markets," Competition Policy Center, Working Paper Series qt1441h2tj, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
- Leonard K. Cheng & Jae Nahm, 2007. "Product boundary, vertical competition, and the double mark-upproblem," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 447-466, 06.
- Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 159-187. Full references (including those not matched with items on IDEAS)
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