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Choosing price or quantity? The role of delegation and network externalities

Alessandra Chirco () and Marcella Scrimitore ()

Economics Letters, 2013, vol. 121, issue 3, 482-486

Abstract: We consider a differentiated duopoly and endogenise the firm choice of the strategy variable (price or quantity) to play on the product market in the presence of network externalities. We model this choice by assuming both competition between entrepreneurial (owner-managed) firms and competition between managerial firms in which market decisions are delegated from owners to revenue-concerned managers. While network externalities are shown not to alter the symmetric equilibrium quantity choice arising in the no-delegation case, sufficiently strong network effects allow us to eliminate the multiplicity of equilibria under delegation and lead to a unique equilibrium in which both firms choose price.

Keywords: Price competition; Quantity competition; Network externalities; Strategic delegation (search for similar items in EconPapers)
JEL-codes: D43 L21 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:121:y:2013:i:3:p:482-486

DOI: 10.1016/j.econlet.2013.10.003

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