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Dynamic price competition in aftermarkets with network effects

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  • Laussel, Didier
  • Resende, Joana

Abstract

This paper studies the dynamic price competition between two firms that sell horizontally differentiated durable goods and, subsequently, provide exclusive complementary goods and services to their customers. The paper analyzes how optimal pricing strategies are affected by the existence of network effects associated with the size of firms’ consumer base. The interaction is thoroughly analyzed as a continuous time linear–quadratic differential game. We provide a necessary and sufficient condition for the existence of a unique duopoly equilibrium in affine strategies. When this condition holds, we show that optimal pricing strategies crucially depend on the nature of the network effects.

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  • Laussel, Didier & Resende, Joana, 2014. "Dynamic price competition in aftermarkets with network effects," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 106-118.
    • Handle: RePEc:eee:mateco:v:50:y:2014:i:c:p:106-118
    DOI: 10.1016/j.jmateco.2013.10.002
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    Cited by:

    1. Bruno Jullien & Alessandro Pavan & Marc Rysman, 2021. "Two-sided markets, pricing, and network effects," Post-Print hal-03828345, HAL.
    2. Laussel, Didier & Van Long, Ngo & Resende, Joana, 2015. "Network effects, aftermarkets and the Coase conjecture: A dynamic Markovian approach," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 84-96.
    3. Cabral, Luís, 2014. "Aftermarket power and foremarket competition," International Journal of Industrial Organization, Elsevier, vol. 35(C), pages 60-69.
    4. Adriana Gama & Rim Lahmandi-Ayed & Ana Elisa Pereira, 2020. "Entry and mergers in oligopoly with firm-specific network effects," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(4), pages 1139-1164, November.
    5. Rabah Amir & Igor Evstigneev & Adriana Gama, 2021. "Oligopoly with network effects: firm-specific versus single network," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(3), pages 1203-1230, April.
    6. Pekka Sääskilahti, 2016. "Buying Decision Coordination and Monopoly Pricing of Network Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(2), pages 313-333, April.
    7. Dainis Zēgners & Tobias Kretschmer, 2017. "Competition with Aftermarket Power When Consumers Are Heterogeneous," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(1), pages 96-122, February.
    8. Svetlana Boyarchenko, 2020. "Super- and submodularity of stopping games with random observations," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(4), pages 983-1022, November.
    9. Gary Biglaiser & Jacques Crémer, 2020. "The Value of Incumbency When Platforms Face Heterogeneous Customers," Post-Print hal-03049041, HAL.

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