Investing in Network Strength, Consumer Expectations, and the Mode of Competition

Onur Koska

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: In a duopoly model with network externalities, this paper studies Cournot and Bertrand firms’ optimal investments in network strength under passive and responsive consumer expectations, and looks at the welfare implications. The results suggest minimum sufficient threshold levels of initial network strength for which (i) the optimal investment levels by both Cournot and Bertrand firms are greater under responsive expectations; (ii) Cournot firms invest more than Bertrand firms under responsive expectations, whereas Bertrand firms invest more than Cournot firms under passive expectations. These threshold levels are also sufficient in that welfare is (i) greater under responsive expectations than under passive expectations for a given competition mode, and (ii) greater under Bertrand competition than under Cournot competition for a given type of consumer expectations.

Keywords: Network strength; investment; consumer expectations; Cournot duopoly; Bertrand duopoly (search for similar items in EconPapers)
JEL-codes: D43 L13 M21 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2022-01-01
New Economics Papers: this item is included in nep-com, nep-gth, nep-mic and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repec.canterbury.ac.nz/cbt/econwp/2209.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:22/09

Access Statistics for this paper

More papers in Working Papers in Economics from University of Canterbury, Department of Economics and Finance Private Bag 4800, Christchurch, New Zealand. Contact information at EDIRC.
Bibliographic data for series maintained by Albert Yee ().