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Dynamic price competition in aftermarkets with network effects

Listed author(s):
  • Didier Laussel

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille 2 - Université Paul Cézanne - Aix-Marseille 3 - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Joana Resende

    (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain, CETE - University of Porto)

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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Paper provided by HAL in its series Post-Print with number hal-01463925.

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Date of creation: 2014
Publication status: Published in Journal of Mathematical Economics, 2014, 50 (C), pp.106--118
Handle: RePEc:hal:journl:hal-01463925
Note: View the original document on HAL open archive server: https://hal-amu.archives-ouvertes.fr/hal-01463925
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

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