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Rupayan Pal
''Price and quantity competition in network goods duopoly: a reversal result''
( 2014, Vol. 34 No.2 )
This paper revisits the classic profit-ranking of Cournot and Bertrand equilibria and the issue of endogenous choice of strategic variables for product market competition, but for a network goods duopoly. It demonstrates that in the case of strong network externalities and imperfect-substitute goods (a) the classic profit-ranking is reversed - each firm earns higher profit under Bertrand competition than that under Cournot competition and (b) firms face a prisoners' dilemma type of situation while choosing between a price contract and a quantity contract and end up with Pareto inferior outcomes, unlike as in the case of standard non-network goods duopoly.
Keywords: Network externalities, Cournot, Bertrand, Profit ranking, Endogenous mode of competition
JEL: D4 - Market Structure and Pricing: General
L1 - Market Structure, Firm Strategy, and Market Performance: General
Manuscript Received : Mar 21 2014 Manuscript Accepted : May 11 2014

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