Title

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

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