### Abstract

We develop a model in which a main product (called product A) provides a performance quality z by itself, whereas a complementary product (called product B) is useless by itself but enhances the main product's performance quality to q > z. This asymmetric complementarity gives rise to the following results. First, if z is relatively small, then firms A and B behave as if the products are symmetrically complementary with the usual double marginalization problem. Second, if z is sufficiently large, then firms A and B price their products as if they are independent. Third, over a certain range of intermediate z, no pure-strategy Nash equilibrium exists.

Original language | English |
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Pages (from-to) | 447-466 |

Number of pages | 20 |

Journal | The RAND Journal of Economics |

Volume | 38 |

Issue number | 2 |

DOIs | |

Publication status | Published - 1 Jun 2007 |

Externally published | Yes |

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## Cite this

CHENG, K. H. L., & NAHM, J. (2007). Product boundary, vertical competition, and the double mark-up problem.

*The RAND Journal of Economics*,*38*(2), 447-466. https://doi.org/10.1111/j.1756-2171.2007.tb00077.x