Price and quantity competition in network goods duopoly: a reversal result

Rupayan Pal

Economics Bulletin, 2014, vol. 34, issue 2, 1019-1027

Abstract: This paper revisits the classic profit-ranking of Cournot and Bertrand equilibria and the issue of endogenous choice of strategic variables for product market competition, but for a network goods duopoly. It demonstrates that in the case of strong network externalities and imperfect-substitute goods (a) the classic profit-ranking is reversed - each firm earns higher profit under Bertrand competition than that under Cournot competition and (b) firms face a prisoners' dilemma type of situation while choosing between a price contract and a quantity contract and end up with Pareto inferior outcomes, unlike as in the case of standard non-network goods duopoly.

Keywords: Network externalities; Cournot; Bertrand; Profit ranking; Endogenous mode of competition (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2014-05-11
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Citations: View citations in EconPapers (34)

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