Technological Complementarities, Demand, and Market Power
NETNOMICS: Economic Research and Electronic Networking, vol. 10 no.2, pp. 161-170, 2009
Posted: 1 Oct 2014 Last revised: 19 Apr 2016
Date Written: 2009
Recent technological changes in many industries have generated numerous complementary technologies. A key implication of complementary technologies is that the demand for related services has tended to change both qualitatively and quantitatively. While the economics literature has examined various aspects, the effects of technological complementarity have not been fully flushed out. Using a simple model, this paper examines the implications of technological complementarity. How have firms’ pricing abilities changed with complementary technologies? What implications do complementary technologies have for regulation? Results show that technological complementarity has the potential to increase the market power of firms, possibly increasing prices to unprecedented levels. This holds whether demand elasticity is constant or variable. Policy implications are discussed.
Keywords: Technological complementarities, Elasticity, Lerner index, Demand, Market power
JEL Classification: L80, L51, D21, K23
Suggested Citation: Suggested Citation