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Choosing price or quantity? The role of delegation and network externalities

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  • Chirco, Alessandra
  • Scrimitore, Marcella

Abstract

We consider a differentiated duopoly and endogenise the firm choice of the strategy variable (price or quantity) to play on the product market in the presence of network externalities. We model this choice by assuming both competition between entrepreneurial (owner-managed) firms and competition between managerial firms in which market decisions are delegated from owners to revenue-concerned managers. While network externalities are shown not to alter the symmetric equilibrium quantity choice arising in the no-delegation case, sufficiently strong network effects allow us to eliminate the multiplicity of equilibria under delegation and lead to a unique equilibrium in which both firms choose price.

Suggested Citation

  • Chirco, Alessandra & Scrimitore, Marcella, 2013. "Choosing price or quantity? The role of delegation and network externalities," Economics Letters, Elsevier, vol. 121(3), pages 482-486.
  • Handle: RePEc:eee:ecolet:v:121:y:2013:i:3:p:482-486
    DOI: 10.1016/j.econlet.2013.10.003
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    References listed on IDEAS

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    More about this item

    Keywords

    Price competition; Quantity competition; Network externalities; Strategic delegation;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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