Wednesday, July 22, 2015

On endogenous Stackelberg leadership: The case of horizontally differentiated duopoly and asymmetric net work compatibility effects

Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) provides comments On endogenous Stackelberg leadership: The case of horizontally differentiated duopoly and asymmetric net work compatibility effects.

ABSTRACT: Introducing product compatibility associated with network externalities (hereafter, network compatibility effects) into a horizontally differentiated duopoly model, we consider how network compatibility effects and the level of product substitutability affect endogenous timing decisions in the cases of quantity- and price-setting competition. In particular, we demonstrate the following. First, given asymmetric network compatibility effects between the products of the firms, there is Stackelberg equilibrium where the firm providing a product with a larger network compatibility effect than some certain level of product substitutability emerges as a leader (follower), whereas the firm providing a product with a smaller network compatibility effect than some certain level of product substitutability emerges as a follower (leader) in the case of quantity (price)-setting competition. Second, the Stackelberg equilibrium is Pareto-superior for both firms compared! with other equilibria. However, with alternative formulation determining network size, with respect to the endogenous Stackelberg leader−follower relationship, the revers holds.

https://lawprofessors.typepad.com/antitrustprof_blog/2015/07/on-endogenous-stackelberg-leadership-the-case-of-horizontally-differentiated-duopoly-and-asymmetric-.html

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