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Does the absence of competition in the market foster competition for the market? A dynamic approach to aftermarkets

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  • LAUSSEL, Didier
  • RESENDE, Joana

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

Abstract

In this paper, we investigate dynamic price competition when firms strategically interact in two distinct but interrelated markets: a primary market and an aftermarket, where indirect network effects arise. We set up a differential game of two-dimensional price competition and we conclude that the absence of price competition in the aftermarket (competition in the market) fosters dynamic price competition in the primary market (competition for the market). We also investigate the impact of network sizes on firms' prices in the primary market concluding that, in equilibrium, larger firms have incentives to compete more fiercely for new "uncolonized" consumers.

Suggested Citation

  • LAUSSEL, Didier & RESENDE, Joana, 2008. "Does the absence of competition in the market foster competition for the market? A dynamic approach to aftermarkets," CORE Discussion Papers 2008033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2008033
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    File URL: http://www.uclouvain.be/cps/ucl/doc/core/documents/dp2008_33.pdf
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    Keywords

    dynamic competition; differential games; Linear Markov Perfect Equilibrium; aftermarkets; network effects.;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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