IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v121y2013i3p482-486.html
   My bibliography  Save this article

Choosing price or quantity? The role of delegation and network externalities

Author

Listed:
  • Chirco, Alessandra
  • Scrimitore, Marcella

Abstract

We consider a differentiated duopoly and endogenise the firm choice of the strategy variable (price or quantity) to play on the product market in the presence of network externalities. We model this choice by assuming both competition between entrepreneurial (owner-managed) firms and competition between managerial firms in which market decisions are delegated from owners to revenue-concerned managers. While network externalities are shown not to alter the symmetric equilibrium quantity choice arising in the no-delegation case, sufficiently strong network effects allow us to eliminate the multiplicity of equilibria under delegation and lead to a unique equilibrium in which both firms choose price.

Suggested Citation

  • Chirco, Alessandra & Scrimitore, Marcella, 2013. "Choosing price or quantity? The role of delegation and network externalities," Economics Letters, Elsevier, vol. 121(3), pages 482-486.
    • Handle: RePEc:eee:ecolet:v:121:y:2013:i:3:p:482-486
    DOI: 10.1016/j.econlet.2013.10.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165176513004503
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econlet.2013.10.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Farrell, Joseph & Saloner, Garth, 1986. "Installed Base and Compatibility: Innovation, Product Preannouncements, and Predation," American Economic Review, American Economic Association, vol. 76(5), pages 940-955, December.
    2. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    3. Tasnadi, Attila, 2006. "Price vs. quantity in oligopoly games," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 541-554, May.
    4. Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
    5. Thijs Jansen & Arie van Lier & Arjen van Witteloostuijn, 2009. "On the impact of managerial bonus systems on firm profit and market competition: the cases of pure profit, sales, market share and relative profits compared," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(3), pages 141-153.
    6. Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2010. "Endogenous managerial incentive contracts in a differentiated duopoly, with and without commitment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(8), pages 531-543, December.
    7. Luca Lambertini, 2000. "Strategic Delegation and the Shape of Market Competition," Scottish Journal of Political Economy, Scottish Economic Society, vol. 47(5), pages 550-570, November.
    8. Miller, Nolan H & Pazgal, Amit I, 2001. "The Equivalence of Price and Quantity Competition with Delegation," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 284-301, Summer.
    9. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    10. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    11. Cabral, Luis M. B. & Salant, David J. & Woroch, Glenn A., 1999. "Monopoly pricing with network externalities," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 199-214, February.
    12. Tanaka, Yasuhito, 2001. "Profitability of price and quantity strategies in an oligopoly," Journal of Mathematical Economics, Elsevier, vol. 35(3), pages 409-418, June.
    13. Luís Cabral, 2011. "Dynamic Price Competition with Network Effects," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(1), pages 83-111.
    14. Hoernig, Steffen, 2012. "Strategic delegation under price competition and network effects," Economics Letters, Elsevier, vol. 117(2), pages 487-489.
    15. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-147, Supplemen.
    16. repec:bla:scotjp:v:47:y:2000:i:5:p:550-70 is not listed on IDEAS
    17. Trishita Bhattacharjee & Rupayan Pal, 2013. "Price vs. Quantity in duopoly with strategic delegation: Role of network externalities," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2013-010, Indira Gandhi Institute of Development Research, Mumbai, India.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yasuhiko Nakamura, 2017. "Choosing Price or Quantity? The Role of Delegation and Network Externalities in a Mixed Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 56(2), pages 174-200, June.
    2. Yasuhiko Nakamura, 2015. "Endogenous Choice of Strategic Variables in an Asymmetric Duopoly with Respect to the Demand Functions that Firms Face," Manchester School, University of Manchester, vol. 83(5), pages 546-567, September.
    3. Yasuhiko Nakamura, 2021. "Price versus quantity in a duopoly with network externalities under active and passive expectations," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 120-133, January.
    4. Nakamura, Yasuhiko, 2015. "Endogenous choice of strategic incentives in a mixed duopoly with a new managerial delegation contract for the public firm," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 262-277.
    5. Luciano Fanti & Nicola Meccheri, 2015. "On the Cournot–Bertrand Profit Differential and the Structure of Unionisation in a Managerial Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 54(4), pages 266-287, December.
    6. Nakamura, Yasuhiko, 2019. "Combining the endogenous choice of the timing of setting incentive parameters and the contents of strategic contracts in a managerial mixed duopoly," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 207-233.
    7. Pal, Rupayan, 2015. "Cournot vs. Bertrand under relative performance delegation: Implications of positive and negative network externalities," Mathematical Social Sciences, Elsevier, vol. 75(C), pages 94-101.
    8. Anomita Ghosh & Rupayan Pal, 2014. "Strategic trade policy for network goods oligopolies," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-039, Indira Gandhi Institute of Development Research, Mumbai, India.
    9. Nicola Meccheri & Luciano Fanti, 2012. "Managerial Delegation Schemes in a Duopoly with Endogenous Production Costs: A Comparison of Sales and Relative Profit Delegation under Centralised Unionisation," Working Paper series 44_12, Rimini Centre for Economic Analysis.
    10. Luciano Fanti & Domenico Buccella, 2017. "Manager‐Union Bargaining Agenda Under Monopoly and with Network Effects," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 38(6), pages 717-730, September.
    11. Yasuhiko Nakamura, 2015. "Biased Managers as Strategic Commitment in a Mixed Duopoly with Relative Profit-Maximizers," Journal of Industry, Competition and Trade, Springer, vol. 15(4), pages 323-336, December.
    12. Yasuhiko Nakamura, 2018. "Endogenous Market Structures in the Presence of a Socially Responsible Firm," Journal of Industry, Competition and Trade, Springer, vol. 18(3), pages 319-348, September.
    13. Rupayan Pal, 2014. "Price and quantity competition in network goods duopoly: a reversal result," Economics Bulletin, AccessEcon, vol. 34(2), pages 1019-1027.
    14. Ya-Chin Wang, 2013. "Optimal R&D Policy and Managerial Delegation Under Vertically Differentiated Duopoly," South African Journal of Economics, Economic Society of South Africa, vol. 81(4), pages 605-624, December.
    15. Evangelos Mitrokostas & Emmanuel Petrakis, 2014. "Organizational structure, strategic delegation and innovation in oligopolistic industries," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(1), pages 1-24, January.
    16. Fanti, Luciano & Gori, Luca & Mammana, Cristiana & Michetti, Elisabetta, 2014. "Local and global dynamics in a duopoly with price competition and market share delegation," Chaos, Solitons & Fractals, Elsevier, vol. 69(C), pages 253-270.
    17. Cellini, Roberto & Lambertini, Luca & Ottaviano, Gianmarco I.P., 2020. "Strategic inattention, delegation and endogenous market structure," European Economic Review, Elsevier, vol. 121(C).
    18. Jumpei Hamamura & Vinay Ramani, 2024. "The welfare effect of release timing of relative performance evaluation under quantity competition and asymmetric costs," Scottish Journal of Political Economy, Scottish Economic Society, vol. 71(3), pages 416-438, July.
    19. Kangsik Choi & DongJoon Lee, 2022. "Network externalities and endogenous timing in managerial firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1462-1475, July.
    20. Luciano Fanti & Marcella Scrimitore, 2019. "How to Compete? Cournot versus Bertrand in a Vertical Structure with an Integrated Input Supplier," Southern Economic Journal, John Wiley & Sons, vol. 85(3), pages 796-820, January.

    More about this item

    Keywords

    Price competition; Quantity competition; Network externalities; Strategic delegation;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:121:y:2013:i:3:p:482-486. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.