Network Externalities and Downstream Collusion under Asymmetric Costs: A Note

Jen-Yao Lee, Chen-Chia Fan and Chien-Shu Tsai ()
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Jen-Yao Lee: Department of International Business, National Kaohsiung University of Science and Technology, Kaohsiung City 807618, Taiwan
Chen-Chia Fan: Department of International Business, National Kaohsiung University of Science and Technology, Kaohsiung City 807618, Taiwan
Chien-Shu Tsai: Institute of Marine Affairs and Business Management, National Kaohsiung University of Science and Technology, Kaohsiung City 811213, Taiwan

Games, 2023, vol. 14, issue 2, 1-11

Abstract: This paper considers the collusive stability of downstream competition in a vertical market with network externalities and cost asymmetry. A dynamic collusion game is constructed, and backward induction is employed to solve the subgame perfect Nash equilibrium. We show that larger network externalities lead to less collusive incentive for an inefficient firm, while for an efficient firm, this depends on the efficiency gap. An increase in network externalities will destabilize the downstream collusion when the cost asymmetry is large and network externalities are relatively weak.

Keywords: collusion; cost asymmetry; network externalities (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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