TY - JOUR
T1 - Asymmetric complementary goods pricing under sequential moves
AU - CHENG, Kwok Hon, Leonard
AU - NAHM, Jae
PY - 2010/5/1
Y1 - 2010/5/1
N2 - 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 RandD incentives.
AB - 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 RandD incentives.
UR - http://commons.ln.edu.hk/sw_master/1511
UR - http://www.scopus.com/inward/record.url?scp=77953201417&partnerID=8YFLogxK
U2 - 10.2202/1935-1682.2390
DO - 10.2202/1935-1682.2390
M3 - Journal Article (refereed)
VL - 10
JO - The B.E. Journal of Economic Analysis and Policy
JF - The B.E. Journal of Economic Analysis and Policy
SN - 2194-6108
IS - 1
ER -