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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26207
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| Title: | Multiproduct Oligopoly and Bertrand Supertraps |
| Authors: | Cabral, Luis M.B. |
| Keywords: | Competition
strategic complementarity
profit complementarity
profitability
economies of scope
learning curves
core competencies
network e®ects
switching costs
the Internet |
| Issue Date: | Jan-2001 |
| Series/Report no.: | EC-01-04 |
| Abstract: | We study oligopoly price competition between multiproduct firms, firms
whose products interact in the pro¯t function. Specifically, we
focus on the impact of intra firm product interactions on the level of
equilibrium prices and pro¯ts. This impact is divided into two
effects: a direct effect and a strategic effect (i.e., through the
competitors' actions). We derive conditions such that, if intra-firm
product interactions cause prices to decrease (increase) while holding
competitors' prices fixed, then the strategic effect hurts (benefits)
the ¯rm. We also show that, under reasonable general assumptions,
the strategic effect more than outweighs the direct effect, so that
equilibrium pro¯ts vary in the direction opposite of the direct
effect (Bertrand supertrap). Several instances of Bertrand supertraps
are developed. For example, stronger demand complementarity or economies
of scope lead to tougher price competition to an extent that may
decrease profitability (even when the direct profit effect is positive).
We present a number of applications of the general results, including
learning curves, network effects, systems competition, bundling,
switching costs, and internet cross-referencing. |
| URI: | http://hdl.handle.net/2451/26207 |
| Appears in Collections: | Economics Working Papers
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