Price and Quantity Competition in a Differentiated Duopoly With Network Compatibility Effects

We consider the efficiency of price and quantity competition in a network products market, where we observe product compatibility with network externalities (hereafter, network compatibility effects). In particular, if network compatibility effects between firms are sufficiently asymmetric, the Cournot equilibrium is more efficient than the Bertrand equilibrium in terms of larger consumer, producer and total surpluses. Then, we consider an endogenous choice of the strategic variables, price and quantity. If the degree of network compatibility effects of the rival firm is larger (smaller) than the degree of product substitutability, then choosing prices (quantities) is a dominant strategy for the firm. Thus, if the network compatibility effects of both firms are larger (smaller), the Bertrand (Cournot) equilibrium arises. Furthermore, if the network compatibility effects between the firms are sufficiently asymmetric, the firm with a larger (smaller) network compatibility effect than a certain level of product substitutability chooses quantities (prices). In this case, the Cournot–Bertrand equilibrium arises, which is less (more) efficient than the Cournot equilibrium in terms of consumer (producer) surplus.     

Aspirations and the transfer paradox in an overlapping generations model

This study examines the transfer problem between two countries when either the donor or the recipient has aspirations, based on parents’ standards of living, in a one-sector overlapping generations model. Focusing on whether and how aspirations impact the welfare effect of a transfer, we demonstrate the following results. First, when the donor forms aspirations, as the degree of his/her aspirations to their parents increases, a transfer is more likely to cause donor enrichment. However, this does not affect the recipient’s welfare at all. In contrast, when the recipient forms aspirations, whether the increase in the degree of these aspirations causes immiserization depends on whether the transfer raises the recipient’s consumption. Second, we show that if the donor’s or recipient’s marginal utility increases with their respective aspirations, the transfer is more likely to cause recipient immiserization. However, whether donor enrichment occurs depends on the situation. These results imply that there are two types of effects that aspirations can have on the welfare of both countries: effects caused by the aspirations, and effects that occur through the capital market. Furthermore, we find that these two effects on welfare do not necessarily work in the same direction.     

Compatibility Under Differentiated Duopoly with Network Externalities: A Comment

Chen and Chen (J Ind Compet Trade 11:43?55, 2011) analyze the effects of compatibility under system product Cournot competition with network externalities. They show that a firm’s optimal strategy is to set an incompatible system standard, even though perfect compatibility is socially optimal. In this case, a social dilemma arises. However, their result depends on a specific assumption about the network size. We use the framework of Shy (1995) to modify this assumption, and hence show that the social dilemma identified by Chen and Chen (J Ind Compet Trade 11:43?55, 2011) does not arise.     

Optimal Timing of Advertising with Demand Spillovers

We construct a model of a horizontally differentiated duopoly with demand spillovers in which advertising influences the willingness-to-pay of consumers for products and thereby affects not only market share, but also the level of market demand. Furthermore, firms decide the timing as well as the level of advertising. We first derive a subgame perfect Nash equilibrium and Stackelberg equilibria in the advertising competition. Then, using the framework of an endogenous timing decision game with an observable delay (i.e., Hamilton and Slutsky, Games Econ Behavior 2: 29–46, 1990), we consider the optimal timing of advertising. We demonstrate that the optimal timing depends on the degree of demand spillovers and the product substitutability. In particular, if there are sufficient asymmetric demand spillovers between firms, there is a unique Stackelberg equilibrium in the advertising competition, in which the firm providing the product with small (large) demand spillovers chooses to invest in advertising early (late), regardless of the mode of competition.