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| Title: | Competing Complements |
| Authors: | Casadesus-Masanell, Ramon - Harvard Business School
Nalebuff, Barry - SOM Yale University
Yoffie, David - Harvard Business School |
| Keywords: | AMD, complementors, complements, co-opetition, equilibrium
non-existence, installed base, Intel, Microsoft, pricing |
| Issue Date: | 2007 |
| Series/Report no.: | NET Institute Working Paper;07-44 |
| Abstract: | In Cournot's model of complements, the producers of A and B are both
monopolists. This paper extends Cournot's model to allow for competition
between complements on one side of the market. Consider two complements,
A and B, where the A + B bundle is valuable only when purchased
together. Good A is supplied by a monopolist (e.g., Microsoft) and there
is competition in the B goods from vertically differentiated suppliers
(e.g., Intel and AMD). In this simple game, there may not be a
pure-strategy equilibria. In the standard case where marginal costs are
weakly positive, there is no pure strategy where the lower quality B
firm obtains positive market share. We also consider the case where A
has negative marginal costs, as would arise when A can expect to make
upgrade sales to an installed base. When profits from the installed base
are sufficiently large, a pure strategy equilibrium exists with two B
firms active in the market. Although there is competition in the
complement market, the monopoly Firm A may earn lower profits in this
environment. Consequently, A may prefer to accept lower future profits
in order to interact with a monopolist complement in B. |
| URI: | http://hdl.handle.net/2451/28524 |
| Appears in Collections: | NET Institute Working Papers Series
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