Oligopoly, Complementarities, and Transformed Potentials

Volker Nocke and Nicolas Schutz

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We adopt a potential games approach to study multiproduct-firm pricing games where products can be local complements or substitutes. We show that any such game based on an IIA demand system admits an ordinal potential, giving rise to a simple proof of equilibrium existence. We introduce the concept of transformed potential, and characterize the class of demand systems that give rise to multiproduct-firm pricing games admitting such a potential, as well as the associated transformation functions. The resulting demand systems allow for substitutability or complementarity patterns that go beyond IIA, and can resemble those induced by "one-stop shopping" behavior.

Keywords: Multiproduct firms; potential game; oligopoly pricing; IIA demand; complementary goods (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Pages: 37
Date: 2025-02
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind and nep-mic
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