Existence of Equilibrium in A Differentiated Duopoly With Network Externalities

Luca Lambertini () and Raimondello Orsini ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: The existence of a pure-strategy subgame perfect equilibrium in qualities and prices is investigated in a duopoly model of vertical differentiation where quality improvements require a quadratic variable cost and network externalities appears in consumer utility. Full market coverage is assumed. We show that the incentive to predate prevents firms to reach a pure strategy noncooperative equilibrium with prices above marginal costs. If network externalities are sufficiently large, a Bertrand equilibrium with zero profits may arise, although the amount of product differentiation is strictly positive. If the weight of network externalities exceeds that of hedonic satisfaction in consumer preferences, then predation is always a dominant strategy.

Date: 1998-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://amsacta.unibo.it/4976/1/333.pdf (application/pdf)

Related works:
Journal Article: THE EXISTENCE OF EQUILIBRIUM IN A DIFFERENTIATED DUOPOLY WITH NETWORK EXTERNALITIES* (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:333

Access Statistics for this paper

More papers in Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna Contact information at EDIRC.
Bibliographic data for series maintained by Dipartimento Scienze Economiche, Universita' di Bologna ().