Friday, January 27, 2017
Steven Berry, Yale University - Department of Economics; National Bureau of Economic Research (NBER) Philip A. Haile, Yale University - Department of Economics; National Bureau of Economic Research (NBER) Mark A. Israel, Compass Lexecon, and Michael L. Katz University of California, Berkeley - Economic Analysis & Policy Group address Complementarity Without Superadditivity.
ABSTRACT: The distinction between complements, substitutes, and independent goods is important in many contexts. It is well known that when consumers’ conditional indirect utilities for two goods are superadditive, the goods are gross complements. Generalizing insights in Gans and King (2006) and Gentzkow (2007), we show that superadditivity between one pair of goods can also introduce complementarity between competing pairs of goods. One implication is that lower prices can result from a merger between producers of goods that themselves offer no superadditivity.