Product boundary, vertical competition, and the double mark-up problem

Leonard K. Cheng, Jae Nahm

Research output: Contribution to journalArticlepeer-review

13 Citations (Scopus)

Abstract

We develop a model in which a main product (called product A) provides a performance quality z by itself, whereas a complementary product (called product B) is useless by itself but enhances the main product's performance quality to q > z. This asymmetric complementarity gives rise to the following results. First, if z is relatively small, then firms A and B behave as if the products are symmetrically complementary with the usual double marginalization problem. Second, if z is sufficiently large, then firms A and B price their products as if they are independent. Third, over a certain range of intermediate z, no pure-strategy Nash equilibrium exists.

Original languageEnglish
Pages (from-to)447-466
Number of pages20
JournalRAND Journal of Economics
Volume38
Issue number2
DOIs
Publication statusPublished - 2007 Jun
Externally publishedYes

Bibliographical note

Funding Information:
Manuscript received July 16, 1999; accepted February 20, 2000. We wish to acknowledge the support of the Medical Research Council of Canada and the National Cancer Institute of Canada for the financial support of this work.

ASJC Scopus subject areas

  • Economics and Econometrics

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