The Effects of Strategic Delegation on Price Competition with Product Compatibility and Network Externalities

The paper analyzes the effects of strategic delegation on price competition in duopoly when product compatibility reinforces network externality. We extend Hoernig (2012) to the case where product compatibility is built into network effects. Product compatibility plays a role of enlarging the network size of a firm through spillover effects. Due to these effects, firm owners require managers to be more aggressive than profit maximizers when the degree of network externality lies in a lower range than that of Hoernig (2012).

[1]  C. Shapiro,et al.  Network Externalities, Competition, and Compatibility , 1985 .

[2]  Luís M. B. Cabral,et al.  Dynamic Price Competition with Network Effects , 2008 .

[3]  Oz Shy,et al.  Industrial Organization: Theory and Applications , 1995 .

[4]  S. Sklivas.  The Strategic Choice of Managerial Incentives , 1987 .

[5]  C. Shapiro,et al.  Systems Competition and Network Effects , 1994 .

[6]  Jeong-Yoo Kim,et al.  Product compatibility as a signal of quality in a market with network externalities , 2002 .

[7]  Steffen Hoernig.  Strategic delegation under price competition and network effects , 2012 .

[8]  C. Fershtman,et al.  Equilibrium Incentives in Oligopoly , 1984 .

[9]  André de Palma,et al.  Partial compatibility with network externalities and double purchase , 1999 .

[10]  Compatibility Under Differentiated Duopoly with Network Externalities , 2011 .

[11]  Alessandra Chirco,et al.  Choosing price or quantity? The role of delegation and network externalities , 2013 .

[12]  Øystein Foros,et al.  Competition and compatibility among Internet Service Providers , 2001, Inf. Econ. Policy.

[13]  Jacques Crémer,et al.  Connectivity in the Commercial Internet , 2003 .

[14]  Jay Pil Choi,et al.  Network Externality, Compatibility Choice, and Planned Obsolescence , 1994 .

[15]  Joseph Farrell,et al.  Standardization, Compatibility, and Innovation , 1985 .

[16]  Pio Baake,et al.  Vertical product differentiation, network externalities, and compatibility decisions , 2001 .

[17]  X. Vives,et al.  Price and quantity competition in a differentiated duopoly , 1984 .

[18]  Tsuyoshi Toshimitsu.  Endogenous product compatibility choice under Cournot competition with a network externality , 2014 .

[19]  Nicholas Economides,et al.  Network Externalities, Complementarities, and Invitations to Enter , 1996 .