A biased firm in a market with complementary products. A note on the welfare effects

Clemens Buchen and Alberto Palermo

Scottish Journal of Political Economy, 2020, vol. 67, issue 4, 448-453

Abstract: We analyse a duopoly setting with complementary products, in which a firm has a bias about its absolute advantage. We show that the bias can internalize parts of the negative externality that the complementarity of goods creates implying a higher producer's surplus. Moreover, we analyse additional conditions, which lead to an increase in the consumer's surplus. Counterintuitively, we show that the presence of a bias can lead to a positive welfare effect.

Date: 2020
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https://doi.org/10.1111/sjpe.12236

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Persistent link: https://EconPapers.repec.org/RePEc:bla:scotjp:v:67:y:2020:i:4:p:448-453

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