×

zbMATH — the first resource for mathematics

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.

MSC:
91B54 Special types of economic markets (including Cournot, Bertrand)
91B24 Microeconomic theory (price theory and economic markets)
PDF BibTeX XML Cite
Full Text: DOI
References:
[1] Bhattacharjee, T., Pal, R., 2013. Price vs. quantity in duopoly with strategic delegation: role of network externalities. Indira Gandhi Institute of Development Research, Mumbai, Working Papers 2013-010, May.
[2] Cabral, L., Dynamic price competition with network effects, Review of Economic Studies, 78, 2, 83-111, (2011) · Zbl 1215.91027
[3] Cabral, L.; Salant, D. J.; Woroch, G. A., Monopoly pricing with network externalities, International Journal of Industrial Organization, 17, 2, 199-214, (1999)
[4] Farrell, J.; Saloner, G., Installed base and compatibility: innovation, product preannouncements, and predation, The American Economic Review, 76, 5, 940-955, (1986)
[5] Fershtman, C.; Judd, K. L., Equilibrium incentives in oligopoly, American Economic Review, 77, 5, 927-940, (1987)
[6] Hoernig, S., Strategic delegation under price competition and network effects, Economics Letters, 117, 2, 487-489, (2012) · Zbl 1254.91377
[7] Jansen, T.; van Lier, A.; van Witteloostuijn, A., On the impact of managerial bonus systems on firm profit and market competition: the cases of pure profit, sales, market share and relative profits compared, Managerial and Decision Economics, 30, 3, 141-153, (2009)
[8] Katz, M. L.; Shapiro, C., Network externalities, competition, and compatibility, The American Economic Review, 75, 3, 424-440, (1985)
[9] Lambertini, L., Strategic delegation and the shape of market competition, Scottish Journal of Political Economy, 47, 5, 550-570, (2000)
[10] Manasakis, C.; Mitrokostas, E.; Petrakis, E., Endogenous managerial incentive contracts in a differentiated duopoly, with and without commitment, Managerial and Decision Economics, 31, 8, 531-543, (2010)
[11] Miller, N.; Pazgal, A., The equivalence of price and quantity competition with delegation, The RAND Journal of Economics, 32, 2, 284-301, (2001)
[12] Singh, N.; Vives, X., Price and quantity competition in a differentiated duopoly, The RAND Journal of Economics, 15, 4, 546-554, (1984)
[13] Sklivas, S. D., The strategic choice of managerial incentives, The RAND Journal of Economics, 18, 3, 452-458, (1987)
[14] Tanaka, Y., Profitability of price and quantity strategies in an oligopoly, Journal of Mathematical Economics, 35, 3, 409-418, (2001) · Zbl 0991.91008
[15] Tasnádi, A., Price vs. quantity in oligopoly games, International Journal of Industrial Organization, 24, 3, 541-554, (2006)
[16] Vickers, J., Delegation and the theory of the firm, The Economic Journal, 95, Supplement, 138-147, (1985)
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. It attempts to reflect the references listed in the original paper as accurately as possible without claiming the completeness or perfect precision of the matching.