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Comment on “Price and quantity competition in network goods duopoly: A reversal resultâ€

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  • Tsuyoshi Toshimitsu

    (Kwansei Gakuin Universit)

Abstract

Based on the utility function of Hoernig (2012), who introduces network externalities, Pal (2014) considers some of the classic issues related to Cournot and Bertrand equilibria, e.g., Singh and Vives (1984), and demonstrates that profit under Bertrand equilibrium is higher than that under Cournot equilibrium if the degree of network externalities is sufficiently large. In this note, focusing on the role of consumer expectations, i.e., active and passive expectations, of network sizes, we demonstrate that the main result of Pal (2014) does not hold under active expectations. Furthermore, we compare profits, outputs, and consumer surplus in equilibrium in the cases of active and passive expectations.

Suggested Citation

  • Tsuyoshi Toshimitsu, 2019. "Comment on “Price and quantity competition in network goods duopoly: A reversal resultâ€," Economics Bulletin, AccessEcon, vol. 39(3), pages 1855-1859.
    • Handle: RePEc:ebl:ecbull:eb-19-00067
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    References listed on IDEAS

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    1. Irina Suleymanova & Christian Wey, 2012. "On the role of consumer expectations in markets with network effects," Journal of Economics, Springer, vol. 105(2), pages 101-127, March.
    2. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: II. Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 38-56, Spring.
    3. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    4. Hagiu, Andrei & Hałaburda, Hanna, 2014. "Information and two-sided platform profits," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 25-35.
    5. GABSZEWICZ, Jean & WAUTHY, Xavier, 2004. "Two-sided markets and price competition with multi-homing," LIDAM Discussion Papers CORE 2004030, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Rupayan Pal, 2014. "Price and quantity competition in network goods duopoly: a reversal result," Economics Bulletin, AccessEcon, vol. 34(2), pages 1019-1027.
    7. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    8. Hoernig, Steffen, 2012. "Strategic delegation under price competition and network effects," Economics Letters, Elsevier, vol. 117(2), pages 487-489.
    9. Tsuyoshi Toshimitsu, 2017. "On consumer expectations in a network goods market: The monopoly case," Economics Bulletin, AccessEcon, vol. 37(1), pages 488-493.
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    Cited by:

    1. DongJoon Lee & Kangsik Choi & Tatsuhiko Nariu, 2020. "Endogenous vertical structure with network externalities," Manchester School, University of Manchester, vol. 88(6), pages 827-846, December.
    2. Yasuhiko Nakamura, 2021. "Price versus quantity in a duopoly with network externalities under active and passive expectations," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 120-133, January.

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    More about this item

    Keywords

    Cournot and Bertrand competition; network externality; horizontally differentiated duopoly; fulfilled expectation; active and passive expectations;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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