Price vs. Quantity in duopoly with strategic delegation: Role of network externalities
This paper examines the implications of network externalities on equilibrium outcomes in a differentiated products duopoly under strategic managerial delegation through relative performance based incentive contracts. It shows that Miller and Pazgal (2001)'s equivalence result does not go through in the presence of network externalities. Instead, Singh and Vives (1984)'s rankings of equilibrium outcomes under Cournot and Bertrand hold true under relative performance based delegation contracts as well, if there are network externalities. However, when firms can choose whether to compete in price or in quantity, there are two pure strategy Nash equilibria and one mixed strategy Nash equilibrium. Interestingly, in pure strategy Nash equilibria asymmetric competition occurs, where a firm competes in price and its rival firm competes in quantity. Further, the mixed strategy Nash equilibrium probability of a firm to compete in terms of price increases with the strength of network effects and is always greater than the probability to compete in terms of price.
|Date of creation:||May 2013|
|Date of revision:|
|Contact details of provider:|| Postal: Gen. A. K. Vaidya Marg, Goregaon (E), Mumbai 400065|
Phone: (022) 840 0919/20/21
Fax: (022) 840 2752/2026
Web page: http://www.igidr.ac.in
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Luciano Fanti & Nicola Meccheri, 2010.
"The Cournot-Bertrand profit differential in a differentiated duopoly with unions and labour decreasing returns,"
2010/107, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
- Luciano Fanti & Nicola Meccheri, 2011. "The Cournot-Bertrand profit differential in a differentiated duopoly with unions and labour decreasing returns," Economics Bulletin, AccessEcon, vol. 31(1), pages 233-244.
- Luciano Fanti & Nicola Meccheri, 2010. "The Cournot-Bertrand Profit Differential in a Differentiated Duopoly with Unions and Labour Decreasing Returns," Working Paper Series 36_10, The Rimini Centre for Economic Analysis.
- Bibhas Saha, 2009. "Mixed ownership in a mixed duopoly with differentiated products," Journal of Economics, Springer, vol. 98(1), pages 25-43, September.
- Szymanski, Stefan, 1994. "Strategic delegation with endogenous costs : A duopoly with wage bargaining," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 105-116, March.
- Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
- Trishita Bhattacharjee & Rupayan Pal, 2013. "Managerial delegation under network effects," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2013-003, Indira Gandhi Institute of Development Research, Mumbai, India.
- Church, Jeffrey & Ware, Roger, 1996. "Delegation, market share and the limit price in sequential entry models," International Journal of Industrial Organization, Elsevier, vol. 14(5), pages 575-609, July.
- Scrimitore, Marcella, 2013. "Price or quantity? The strategic choice of subsidized firms in a mixed duopoly," Economics Letters, Elsevier, vol. 118(2), pages 337-341.
- Chaim Fershtman & Kenneth L Judd, 1984.
"Equilibrium Incentives in Oligopoly,"
642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Nicholas Economides, 1997.
"Network Externalities, Complementarities, and Invitations to Enter,"
- Economides, Nicholas, 1996. "Network externalities, complementarities, and invitations to enter," European Journal of Political Economy, Elsevier, vol. 12(2), pages 211-233, September.
- Ghosh, Arghya & Mitra, Manipushpak, 2010. "Comparing Bertrand and Cournot in mixed markets," Economics Letters, Elsevier, vol. 109(2), pages 72-74, November.
- Fershtman, Chaim, 1985. "Managerial incentives as a strategic variable in duopolistic environment," International Journal of Industrial Organization, Elsevier, vol. 3(2), pages 245-253, June.
- Piercarlo Zanchettin, 2006. "Differentiated Duopoly with Asymmetric Costs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(4), pages 999-1015, December.
- Dastidar, Krishnendu Ghosh, 1997. "Comparing Cournot and Bertrand in a Homogeneous Product Market," Journal of Economic Theory, Elsevier, vol. 75(1), pages 205-212, July.
- Javier M. López Cuñat & Miguel González-Maestre, 1999.
"- Delegation And Mergers In Oligopoly,"
Working Papers. Serie AD
1999-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Matsumura, Toshihiro & Ogawa, Akira, 2012. "Price versus quantity in a mixed duopoly," Economics Letters, Elsevier, vol. 116(2), pages 174-177.
- Das, Satya P., 1997. "Strategic managerial delegation and trade policy," Journal of International Economics, Elsevier, vol. 43(1-2), pages 173-188, August.
- Lambertini, Luca, 1997.
"Prisoners' Dilemma in Duopoly (Super)Games,"
Journal of Economic Theory,
Elsevier, vol. 77(1), pages 181-191, November.
- Luca Lambertini, 1997. "Prisoners’ Dilemma in Duopoly (Super)games," CIE Discussion Papers 1997-08, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
- L. Lambertini, 1996. "Prisoners` Dilemma in Duopoly Supergames," Working Papers 264, Dipartimento Scienze Economiche, Universita' di Bologna.
- Ziss, Steffen, 2001. "Horizontal mergers and delegation," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 471-492, March.
- White, Mark D., 2001. "Managerial incentives and the decision to hire managers in markets with public and private firms," European Journal of Political Economy, Elsevier, vol. 17(4), pages 877-896, November.
- Hackner, Jonas, 2000.
"A Note on Price and Quantity Competition in Differentiated Oligopolies,"
Journal of Economic Theory,
Elsevier, vol. 93(2), pages 233-239, August.
- Häckner, Jonas, 1999. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Research Papers in Economics 1999:9, Stockholm University, Department of Economics.
- Kangsik Choi, 2012. "Price And Quantity Competition In A Unionised Mixed Duopoly: The Cases Of Substitutes And Complements," Australian Economic Papers, Wiley Blackwell, vol. 51(1), pages 1-22, 03.
- Rupayan Pal, 2009.
"Technology adoption in a differentiated duopoly: Cournot versus bertrand,"
Indira Gandhi Institute of Development Research, Mumbai Working Papers
2009-001, Indira Gandhi Institute of Development Research, Mumbai, India.
- Pal, Rupayan, 2010. "Technology adoption in a differentiated duopoly: Cournot versus Bertrand," Research in Economics, Elsevier, vol. 64(2), pages 128-136, June.
- Rupayan Pal, 2009. "Technology Adoption in a Differentiated Duopoly - Cournot versus Bertrand," Microeconomics Working Papers 22388, East Asian Bureau of Economic Research.
- Miller, Nolan H & Pazgal, Amit I, 2001. "The Equivalence of Price and Quantity Competition with Delegation," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 284-301, Summer.
- Rupayan Pal, 2010. "Cooperative Managerial Delegation, R&D And Collusion," Bulletin of Economic Research, Wiley Blackwell, vol. 62(2), pages 155-169, 04.
- Jansen, Thijs & van Lier, Arie & van Witteloostuijn, Arjen, 2007. "A note on strategic delegation: The market share case," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 531-539, June.
- Hoernig, Steffen, 2012. "Strategic delegation under price competition and network effects," Economics Letters, Elsevier, vol. 117(2), pages 487-489.
- Juan Carlos Bárcena-Ruiz & María Begoña Garzón, 2002. "Environmental taxes and strategic delegation," Spanish Economic Review, Springer;Spanish Economic Association, vol. 4(4), pages 301-309.
When requesting a correction, please mention this item's handle: RePEc:ind:igiwpp:2013-010. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamprasad M. Pujar)
If references are entirely missing, you can add them using this form.