Incentives to Invest in Electronic Coordination: Under- or Overinvestment in Equilibrium?
Karl Morasch () and
Martin Bandulet ()
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Karl Morasch: University of Augsburg, Department of Economics
No 200, Discussion Paper Series from Universitaet Augsburg, Institute for Economics
Abstract:
Do firms have proper incentives to invest in electronic coordination? We discuss this question in an oligopoly model with a local firm and a distant competitor that may reduce transport costs by investing in electronic coordination. In a two-stage game with investment in the first stage and price or quantity competition with differentiated products in the second stage we compare profit maximizing investment with (constrained) welfare maximization by a social planer. Depending on market demand, firm conduct and investment costs either over- or underinvestment may result: The firm will overinvest if the negative impact on its competitor exceeds the gain in consumer surplus. This is shown to be especially likely under quantity competition with (almost) homogenous products.
Keywords: Electronic Markets; Strategic Investments; Transport Costs; Product Differentiation (search for similar items in EconPapers)
JEL-codes: D43 D61 L13 (search for similar items in EconPapers)
Date: 2001-03
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Persistent link: https://EconPapers.repec.org/RePEc:aug:augsbe:0200
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