|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|
|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.|
|Appears in Collections:||NET Institute Working Papers Series|
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