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Quality coordination and complementary products

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  • Volodymyr Bilotkach

Abstract

This article models the choice of price and quality, where products are complementary; and components can be provided by either one or two monopolists. The firms have to choose price and quality simultaneously, but can coordinate in the latter dimension. We consider two specifications for the quality of the composite good: 'bottleneck' and additive set-ups. In both cases, a single monopolist may produce lower quality as compared to dual ownership, if the latter is modelled as a single-stage quality-and-price setting game. When separate markets for components of the composite good are added to the model, we provide an example where dual ownership leading to higher quality also yields higher consumer surplus (but not total welfare) than a single monopolist.

Suggested Citation

  • Volodymyr Bilotkach, 2010. "Quality coordination and complementary products," Applied Economics, Taylor & Francis Journals, vol. 42(15), pages 1875-1888.
    • Handle: RePEc:taf:applec:v:42:y:2010:i:15:p:1875-1888
    DOI: 10.1080/00036840701749043
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    Cited by:

    1. Ali Salmasnia & Ali Talesh-Kazemi & Mohammad Reza Maleki, 2022. "Joint optimization of inventory planning, maintenance policy and pricing for perishable complementary products by considering the product freshness and technology level," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(4), pages 713-746, December.

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