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Endogenous product substitutability strategy under duopoly

Chan Wang, Pu-yan Nie and Ting Cui

Managerial and Decision Economics, 2019, vol. 40, issue 6, 623-632

Abstract: This article develops endogenous product substitutability theory. With game theory approach, the effects of endogenous product substitutability are characterized. First, equilibrium under endogenous product substitutability is achieved. Second, product substitutability strategy promotes price, total outputs, and social welfare. Outputs under high‐efficiency firm's product substitutability are compared with those under low‐efficiency firm's product substitutability. Third, compared with the other cases, joint product substitutability improves price difference. Finally, the outputs of all firms under endogenous product substitutability are shown to be lower than the social optimality level. The policy implication is to encourage firms investing product substitutability.

Date: 2019
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