1On endogenous Stackelberg leadership: The case of horizontally differentiated duopoly and asymmetric net work compatibility effects

Tsuyoshi Toshimitsu

No 127, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: Introducing product compatibility associated with network externalities (hereafter, network compatibility effects) into a horizontally differentiated duopoly model, we consider how network compatibility effects and the level of product substitutability affect endogenous timing decisions in the cases of quantity- and price-setting competition. In particular, we demonstrate the following. First, given asymmetric network compatibility effects between the products of the firms, there is Stackelberg equilibrium where the firm providing a product with a larger network compatibility effect than some certain level of product substitutability emerges as a leader (follower), whereas the firm providing a product with a smaller network compatibility effect than some certain level of product substitutability emerges as a follower (leader) in the case of quantity (price)-setting competition. Second, the Stackelberg equilibrium is Pareto-superior for both firms compared with other equilibria. However, with alternative formulation determining network size, with respect to the endogenous Stackelberg leader−follower relationship, the revers holds.

Keywords: Stackelberg equilibrium; Nash equilibrium; leader-follower; product compatibility; network externality; product substitutability; fulfilled expectations; horizontally differentiated products (search for similar items in EconPapers)
JEL-codes: D21 D43 D62 L15 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2015-04, Revised 2015-04
New Economics Papers: this item is included in nep-bec, nep-com and nep-net
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:127

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