Network Externalities and Downstream Collusion under Asymmetric Costs: A Note

This paper considers the collusive stability of downstream competition in a vertical market with network externalities and cost asymmetry. A dynamic collusion game is constructed, and backward induction is employed to solve the subgame perfect Nash equilibrium. We show that larger network externalit...

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Bibliographic Details
Published in:Games 2023-04, Vol.14 (2), p.29
Main Authors: Lee, Jen-Yao, Fan, Chen-Chia, Tsai, Chien-Shu
Format: Article
Language:English
Subjects:
Asymmetry
Cartels
collusion
Competition
Consumer electronics
cost asymmetry
Costs
Duopoly
Economic aspects
Efficiency
Equilibrium
Externalities (Economics)
Externality
Game theory
Literature reviews
Manufacturers
network externalities
Product differentiation
Profits
Vertical markets
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Summary:This paper considers the collusive stability of downstream competition in a vertical market with network externalities and cost asymmetry. A dynamic collusion game is constructed, and backward induction is employed to solve the subgame perfect Nash equilibrium. We show that larger network externalities lead to less collusive incentive for an inefficient firm, while for an efficient firm, this depends on the efficiency gap. An increase in network externalities will destabilize the downstream collusion when the cost asymmetry is large and network externalities are relatively weak.
ISSN:2073-4336
2073-4336
DOI:10.3390/g14020029