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Network Externalities and Downstream Collusion under Asymmetric Costs: A Note

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  • Jen-Yao Lee

    (Department of International Business, National Kaohsiung University of Science and Technology, Kaohsiung City 807618, Taiwan
    Center for Global Operations Research & Development, National Kaohsiung University of Science and Technology, Kaohsiung City 807618, Taiwan)

  • Chen-Chia Fan

    (Department of International Business, National Kaohsiung University of Science and Technology, Kaohsiung City 807618, Taiwan)

  • Chien-Shu Tsai

    (Institute of Marine Affairs and Business Management, National Kaohsiung University of Science and Technology, Kaohsiung City 811213, Taiwan
    Center for Marine Affairs Studies, National Kaohsiung University of Science and Technology, Kaohsiung City 811213, Taiwan)

Abstract

This paper considers the collusive stability of downstream competition in a vertical market with network externalities and cost asymmetry. A dynamic collusion game is constructed, and backward induction is employed to solve the subgame perfect Nash equilibrium. We show that larger network externalities lead to less collusive incentive for an inefficient firm, while for an efficient firm, this depends on the efficiency gap. An increase in network externalities will destabilize the downstream collusion when the cost asymmetry is large and network externalities are relatively weak.

Suggested Citation

  • Jen-Yao Lee & Chen-Chia Fan & Chien-Shu Tsai, 2023. "Network Externalities and Downstream Collusion under Asymmetric Costs: A Note," Games, MDPI, vol. 14(2), pages 1-11, March.
    • Handle: RePEc:gam:jgames:v:14:y:2023:i:2:p:29-:d:1111474
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