Substituting Complements

Posted: 14 Jul 2008

See all articles by Giuseppe Dari‐Mattiacci

Giuseppe Dari‐Mattiacci

University of Amsterdam; Tinbergen Institute

Francesco Parisi

University of Minnesota - Law School; University of Bologna

Multiple version iconThere are 2 versions of this paper

Date Written: September 2006

Abstract

The presence of multiple sellers in the provision of (nonsubstitutable) complementary goods leads to outcomes that are worse than those generated by a monopoly (with a vertically integrated production of complements), a problem known in the economic literature as complementary oligopoly and recently popularized in the legal literature as the tragedy of the anticommons. We ask the following question: how many substitutes for each complement are necessary to render the presence of multiple sellers preferable to a monopoly? Highlighting the asymmetries between Cournot (quantity) and Bertrand (price) competition and their dual models, we show that the results crucially depend on whether firms compete by controlling price or quantity. Two substitutes per component are sufficient when firms choose price. However, when firms choose quantity, the availability of substitutes, regardless of their number, is ineffective. Considering more complex cases of multi-complementarity, we ask the related question of how many complements need to be substitutable and offer comments on equilibrium prices and quantities under different scenarios.

Keywords: D43, D62, K11, L13

Suggested Citation

Dari-Mattiacci, Giuseppe and Parisi, Francesco, Substituting Complements (September 2006). Journal of Competition Law and Economics, Vol. 2, Issue 3, pp. 333-347, 2006, Available at SSRN: https://ssrn.com/abstract=1159253 or http://dx.doi.org/nhl018

Giuseppe Dari-Mattiacci (Contact Author)

University of Amsterdam ( email )

Postbus 15654
1001 ND
Amsterdam, Noord-Holland 1001 ND
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Francesco Parisi

University of Minnesota - Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States

University of Bologna ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

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