Limit pricing with complementary goods. Journal of Modeling in Management

Abstract

This paper examines the equilibrium limit price charged by a producer trying to deter the entry of a firm that can choose one of two markets of complementary goods. It is shown that an incumbent will be willing to spend more resources –i.e. charge a lower limit price- to deter entry into its market as products become more complementary. This is because additional benefits are gained from entry deterrence by facing a more competitive market in the complementary product. The additional benefits of entry deterrence are shown to be a function of the degree of complementarity between goods.

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Forthcoming in Journal of Modelling in Management


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