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Price and quantity competition in network goods duopoly: a reversal result

Author

Listed:
  • Rupayan Pal

    (Indira Gandhi Institute of Development Research (IGIDR), India)

Abstract

This paper revisits the classic profit-ranking of Cournot and Bertrand equilibria and the issue of endogenous choice of strategic variables for product market competition, but for a network goods duopoly. It demonstrates that in the case of strong network externalities and imperfect-substitute goods (a) the classic profit-ranking is reversed - each firm earns higher profit under Bertrand competition than that under Cournot competition and (b) firms face a prisoners' dilemma type of situation while choosing between a price contract and a quantity contract and end up with Pareto inferior outcomes, unlike as in the case of standard non-network goods duopoly.

Suggested Citation

  • Rupayan Pal, 2014. "Price and quantity competition in network goods duopoly: a reversal result," Economics Bulletin, AccessEcon, vol. 34(2), pages 1019-1027.
    • Handle: RePEc:ebl:ecbull:eb-14-00189
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Network externalities; Cournot; Bertrand; Profit ranking; Endogenous mode of competition;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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