Lee DongJoon

In network industry under Cournot and Bertrand competition, we examine a model when owners of firms hire biased managers who have incorrect market demand. Contrast to previous studies, we show that (i) regardless of the strength of network externalities when consumers form the responsive and passive expectations, owners realize strategic advantage by hiring biased managers to be more aggressive under Cournot and Bertrand competition, (ii) firms prefer facing passive expectations for the weak network externalities and vice versa for the strong network exteranlities under Bertrand and Cournot competition, (iii) if the network size is sufficiently large, then the prisoner's dilemma that firms hire aggressive managers no longer exists under both competition modes. As with no delegation case, we obtain the different rankings of firms' profit depending on both network externalities and forming of expectations under Cournot and Bertrand competition.

We compare collusion stability under Bertrand and Cournot duopoly with differentiated network products. Contrast to previous studies, we show that (i) the range of collusion incentive is narrower under Cournot competition than under Bertrand competition, unless network externalities are sufficiently strong; (ii) collusion in prices (quantities) is more stable than in quantities (prices) if network externalities are strong (weak); and (iii) finally, regardless of the strength of network externalities, collusion under Bertrand competition is more stable for high levels of substitutability than under Cournot competition.

By allowing the supplier to contract simultaneously or sequentially with asymmetric retailers under Bertrand competition, we analyze the welfare implications of banning price discrimination in input markets. In contrast to Cournot competition, we find that: (i) under sequential contracting, the monopolistic supplier prefers to contract with an inefficient retailer first and an efficient retailer later; and (ii) when comparing consumers' surplus and social welfare under simultaneous and sequential contracting with uniform pricing (resp. price discrimination), consumers' surplus and welfare are smaller (resp. greater) in sequential contracting than in simultaneous contracting. However, the supplier always prefers simultaneous contracting over sequential contracting under Bertrand competition; and thus sequential contracting does not occur. And, in simultaneous contracting, consumer surplus and total welfare are higher for uniform pricing than price discrimination.

This study investigates the strategic commitment of downstream firms' private R&D investments. While an observable investment, as a pre-production commitment, influences an upstream firm's input price, it affects a rival downstream firm's output. We show that both downstream firms commit to underinvestment (overinvestment) to reduce an input price (compete with a rival firm) in cases of small (large) product substitutability. However, they make their aggressive investments unobservable in the market in cases of medium product substitutability. Furthermore, when both products are sufficiently differentiated, consumer surplus and social welfare are larger when downstream investments are unobservable.

We investigate the choice of endogenous timing in the presence of network externalities under Bertrand competition. Contrary to the results of sequentiality in equilibrium, we demonstrate that when managers are being delegated both the market and timing decision, there exists a unique simultaneous move in equilibrium regardless of network externalities. However, when the choice of timing remains in the owners' hands, if the network externalities are weak (strong), it involves sequential (simultaneous) equilibrium. Consequently, from the viewpoint of social welfare and consumer surplus, Pareto superiority can be obtained endogenously when the strength of network externalities is strong.