The Existence of Equilibrium in a Differentiated Duopoly with Network
نویسنده
چکیده
The existence of a pure-strategy subgame-perfect equilibrium in qualities and prices is investigated in a duopoly model of vertical differentiation where quality improvements require a quadratic variable cost and network externalities operate. We show that there exists a parameter region where the incentive to predate at the quality stage prevents firms from reaching a pure-strategy non-cooperative equilibrium with prices above marginal costs. If network externalities are sufficiently large, a Bertrand equilibrium with zero profits may arise, although the amount of product differentiation is strictly positive. JEL Classification Numbers: D62, L13.
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