IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v36y2014icp309-315.html
   My bibliography  Save this article

Exploring Stackelberg profit ordering under asymmetric product differentiation

Author

Listed:
  • Banerjee, Dyuti S.
  • Chatterjee, Ishita

Abstract

The literature on differentiated products only considers symmetric cross-price effects and shows that the profit ordering of firms in a sequential set-up is uni-directional. This paper shows that uni-directional profit ordering breaks down under asymmetric product differentiation. Above a unique cross-price effect level the follower's profit exceeds that of the leader. The reverse is true below this level. This result holds for both substitutes and complements.

Suggested Citation

  • Banerjee, Dyuti S. & Chatterjee, Ishita, 2014. "Exploring Stackelberg profit ordering under asymmetric product differentiation," Economic Modelling, Elsevier, vol. 36(C), pages 309-315.
  • Handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:309-315
    DOI: 10.1016/j.econmod.2013.09.056
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999313004252
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.econmod.2013.09.056?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Deneckere, R., 1983. "Duopoly supergames with product differentiation," Economics Letters, Elsevier, vol. 11(1-2), pages 37-42.
    2. Rojas, Christian & Peterson, Everett B., 2008. "Demand for differentiated products: Price and advertising evidence from the U.S. beer market," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 288-307, January.
    3. W. E. Diewert, 1980. "Symmetry Conditions for Market Demand Functions," Review of Economic Studies, Oxford University Press, vol. 47(3), pages 595-601.
    4. Hathaway, Neville J. & Rickard, John A., 1979. "Equilibria of price-setting and quantity-setting duopolies," Economics Letters, Elsevier, vol. 3(2), pages 133-137.
    5. Kris De Jaegher, 2009. "Asymmetric Substitutability: Theory And Some Applications," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 838-855, October.
    6. Ono, Yoshiyasu, 1978. "The Equilibrium of Duopoly in a Market of Homogeneous Goods," Economica, London School of Economics and Political Science, vol. 45(179), pages 287-295, August.
    7. Gal-Or, Esther, 1985. "First Mover and Second Mover Advantages," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 649-653, October.
    8. 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.
    9. Okuguchi, Koji, 1987. "Equilibrium prices in the Bertrand and Cournot oligopolies," Journal of Economic Theory, Elsevier, vol. 42(1), pages 128-139, June.
    10. Anderson, Simon, 1987. "Spatial competition and price leadership," International Journal of Industrial Organization, Elsevier, vol. 5(4), pages 369-398.
    11. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    12. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-366, May.
    13. Andre Bonfrer & Ernst R. Berndt & Alvin Silk, 2006. "Anomalies in Estimates of Cross-Price Elasticities for Marketing Mix Models: Theory and Empirical Test," NBER Working Papers 12756, National Bureau of Economic Research, Inc.
    14. Hackner, Jonas, 2000. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Journal of Economic Theory, Elsevier, vol. 93(2), pages 233-239, August.
    15. Ono, Yoshiyasu, 1982. "Price Leadership: A Theoretical Analysis," Economica, London School of Economics and Political Science, vol. 49(193), pages 11-20, February.
    16. Vives, Xavier, 2005. "Games with strategic complementarities: New applications to industrial organization," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 625-637, September.
    17. Boyer, Marcel & Moreaux, Michel, 1987. "On Stackelberg Equilibria with Differentiated Products: The Critical Role of the Strategy Space," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 217-230, December.
    18. Leonard Cheng, 1985. "Comparing Bertrand and Cournot Equilibria: A Geometric Approach," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 146-152, Spring.
    19. Vives, Xavier, 1985. "On the efficiency of Bertrand and Cournot equilibria with product differentation," Journal of Economic Theory, Elsevier, vol. 36(1), pages 166-175, June.
    20. Dastidar, Krishnendu Ghosh, 2004. "On Stackelberg games in a homogeneous product market," European Economic Review, Elsevier, vol. 48(3), pages 549-562, June.
    21. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jochen Manegold, 2016. "Stackelberg Competition among Intermediaries in a Differentiated Duopoly with Product Innovation," Working Papers CIE 98, Paderborn University, CIE Center for International Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lambertini, Luca, 1997. "Prisoners' Dilemma in Duopoly (Super)Games," Journal of Economic Theory, Elsevier, vol. 77(1), pages 181-191, November.
    2. Amr Farahat & Georgia Perakis, 2011. "TECHNICAL NOTE---A Comparison of Bertrand and Cournot Profits in Oligopolies with Differentiated Products," Operations Research, INFORMS, vol. 59(2), pages 507-513, April.
    3. Savorelli, Luca, 2012. "Asymmetric cross-price effects and collusion," Research in Economics, Elsevier, vol. 66(4), pages 375-382.
    4. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, December.
    5. Lofaro, Andrea, 2002. "On the efficiency of Bertrand and Cournot competition under incomplete information," European Journal of Political Economy, Elsevier, vol. 18(3), pages 561-578, September.
    6. M. Breton & A. Turki & G. Zaccour, 2004. "Dynamic Model of R&D, Spillovers, and Efficiency of Bertrand and Cournot Equilibria," Journal of Optimization Theory and Applications, Springer, vol. 123(1), pages 1-25, October.
    7. Arghya Ghosh & Manipushpak Mitra, 2008. "Comparing Bertrand and Cournot Outcomes in the Presence of Public Firms," Discussion Papers 2008-18, School of Economics, The University of New South Wales.
    8. Delbono, Flavio & Lambertini, Luca, 2016. "Ranking Bertrand, Cournot and supply function equilibria in oligopoly," Energy Economics, Elsevier, vol. 60(C), pages 73-78.
    9. Rupayan Pal, "undated". "The Cournot-Bertrand profit differential: A Reversal result in network goods duopoly," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2013-014, Indira Gandhi Institute of Development Research, Mumbai, India.
    10. Manipushpak Mitra & Rupayan Pal & Arindam Paul & P. M. Sharada, 2020. "Equilibrium Coexistence of Public and Private Firms and the Plausibility of Price Competition," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 176(2), pages 217-242.
    11. Rupayan Pal, 2014. "Price and quantity competition in network goods duopoly: a reversal result," Economics Bulletin, AccessEcon, vol. 34(2), pages 1019-1027.
    12. Aymeric Lardon, 2017. "On the Coalitional Stability of Monopoly Power in Differentiated Bertrand and Cournot Oligopolies," GREDEG Working Papers 2017-10, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    13. Xiaoming Yan & Yong Wang & Zhaofu Hong, 2016. "Comparison of Bertrand and Cournot competitions under random yield," International Journal of Production Research, Taylor & Francis Journals, vol. 54(11), pages 3256-3276, June.
    14. S. Askar, 2014. "On Cournot–Bertrand competition with differentiated products," Annals of Operations Research, Springer, vol. 223(1), pages 81-93, December.
    15. Daisuke Hirata & Toshihiro Matsumura, 2011. "Price leadership in a homogeneous product market," Journal of Economics, Springer, vol. 104(3), pages 199-217, November.
    16. Jochen Manegold, 2016. "Stackelberg Competition among Intermediaries in a Differentiated Duopoly with Product Innovation," Working Papers CIE 98, Paderborn University, CIE Center for International Economics.
    17. Colombo, Luca & Labrecciosa, Paola, 2015. "On the Markovian efficiency of Bertrand and Cournot equilibria," Journal of Economic Theory, Elsevier, vol. 155(C), pages 332-358.
    18. Furth, D., 2007. "Anything goes with heterogeneous, but not with homogeneous oligopoly," CeNDEF Working Papers 07-12, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
    19. R. Cellini & L. Lambertini, 2000. "Differential Games and Oligopoly Theory: An Overview," Working Papers 369, Dipartimento Scienze Economiche, Universita' di Bologna.
    20. Manasakis, Constantine & Vlassis, Minas, 2014. "Downstream mode of competition with upstream market power," Research in Economics, Elsevier, vol. 68(1), pages 84-93.

    More about this item

    Keywords

    Asymmetric product differentiation; Complements; Profit ordering; Substitutes;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:309-315. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.