Asymmetric complementary goods pricing under sequential moves
Document Type
Journal article
Source Publication
The B.E. Journal of Economic Analysis & Policy
Publication Date
5-1-2010
Volume
10
Issue
1
Publisher
Walter de Gruyter GmbH
Keywords
complementary goods, pricing, double mark-up problem
Abstract
We examine asymmetric complementary good pricing under sequential moves when a price leader (firm A) produces a main product, whereas a price follower (firm B) produces an enhancer for the main product. We show that under sequential moves there is an additional pricing regime “pseudo complements" besides the two cases obtained under simultaneous pricing, namely, (i) “independent pricing" and (ii) “bundling pricing." Under the pseudo complements regime, firm A behaves as if it is an independent monopolist, whereas firm B behaves as if the two products are strict complements. We characterize several properties of the pseudo complements regime. We show that the double mark-up problem persists in the pseudo complement regime. However, when firm A incorporates firm B's function into product A, it alleviates the double mark-up problem. We also explore how the main product's quality improvement affects the follower's R&D incentives.
DOI
10.2202/1935-1682.2390
Print ISSN
21946108
E-ISSN
19351682
Publisher Statement
Copyright © 2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Cheng, L. K., & Nahm, J. (2010). Asymmetric complementary goods pricing under sequential moves. The B.E. Journal of Economic Analysis & Policy, 10(1). doi: 10.2202/1935-1682.2390