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Choosing price or quantity? The role of delegation and network externalities. (English) Zbl 1288.91138
Summary: We consider a differentiated duopoly and endogenise the firm choice of the strategy variable (price or quantity) to play on the product market in the presence of network externalities. We model this choice by assuming both competition between entrepreneurial (owner-managed) firms and competition between managerial firms in which market decisions are delegated from owners to revenue-concerned managers. While network externalities are shown not to alter the symmetric equilibrium quantity choice arising in the no-delegation case, sufficiently strong network effects allow us to eliminate the multiplicity of equilibria under delegation and lead to a unique equilibrium in which both firms choose price.

91B54 Special types of economic markets (including Cournot, Bertrand)
91B24 Microeconomic theory (price theory and economic markets)
Full Text: DOI
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