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Strategic Impacts of Technology Switch-Over: Who Benefits from Electronic Commerce?

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Abstract

The introduction of new digital production and distribution technologies may alter the firms' strategy sets, as they are not able to commit credibly to quantity strategies anymore. Mixed oligopoly markets may emerge where some companies compete in prices, while others adjust their quantities. Using an approach first published by Reinhard Selten (1971) and developed further by Richard Cornes and Roger Hartley (2001), I calculate the Nash equilibrium of such an N-person game in a linear specification. Then I discuss the strategic effect of a technology switch-over on market performance and social welfare. A firm that introduces new technology suffers a srategic disadvantage, while consumers benefit.

Suggested Citation

  • Martin Bandulet, 2002. "Strategic Impacts of Technology Switch-Over: Who Benefits from Electronic Commerce?," Discussion Paper Series 221, Universitaet Augsburg, Institute for Economics.
  • Handle: RePEc:aug:augsbe:0221
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    File URL: http://www.wiwi.uni-augsburg.de/vwl/institut/paper/221.pdf
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    References listed on IDEAS

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    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 217-235.
    2. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, pages 297-308.
    3. J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, pages 1676-1692.
    4. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
    5. Karl Morasch & Peter Welzel, 2000. "Emergence of Electronic Markets: Implication of Declining Transport Costs on Firm Profits and Consumer Surplus," Discussion Paper Series 196, Universitaet Augsburg, Institute for Economics.
    6. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, January.
    7. Belleflamme, Paul, 2001. "Oligopolistic competition, IT use for product differentiation and the productivity paradox," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 227-248, January.
    8. 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.
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    More about this item

    Keywords

    electronic commerce; oligopoly theory; product differentiation;

    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

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