Endogenous product substitutability strategy under duopoly

This article develops endogenous product substitutability theory. With game theory approach, the effects of endogenous product substitutability are characterized. First, equilibrium under endogenous product substitutability is achieved. Second, product substitutability strategy promotes price, total...

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Bibliographic Details
Published in:Managerial and decision economics 2019-09, Vol.40 (6), p.623-632
Main Authors: Wang, Chan, Nie, Pu‐yan, Cui, Ting
Format: Article
Language:English
Subjects:
Duopoly
Endogenous
Game theory
Joint products
Pricing policies
Social welfare
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Summary:This article develops endogenous product substitutability theory. With game theory approach, the effects of endogenous product substitutability are characterized. First, equilibrium under endogenous product substitutability is achieved. Second, product substitutability strategy promotes price, total outputs, and social welfare. Outputs under high‐efficiency firm's product substitutability are compared with those under low‐efficiency firm's product substitutability. Third, compared with the other cases, joint product substitutability improves price difference. Finally, the outputs of all firms under endogenous product substitutability are shown to be lower than the social optimality level. The policy implication is to encourage firms investing product substitutability.
ISSN:0143-6570
1099-1468
DOI:10.1002/mde.3033