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. © 2013 Elsevier B.V.
Choosing price or quantity? The role of delegation and network externalities / Chirco, A.; Scrimitore, M.. - In: ECONOMICS LETTERS. - ISSN 0165-1765. - 121:3(2013), pp. 482-486. [10.1016/j.econlet.2013.10.003]
Choosing price or quantity? The role of delegation and network externalities
Scrimitore M.
2013-01-01
Abstract
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. © 2013 Elsevier B.V.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
