On pricing and protection of complementary products |
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Authors: | Oliver Gürtler |
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Institution: | (1) Department of Economics, BWL II, University of Bonn, Adenauerallee 24-42, 53113 Bonn, Germany |
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Abstract: | The business literature advises firms producing complementary products to sell the core product at a low price, but to price
the complementary product at a higher premium. This strategy, however, is problematic if firms face competitors in the market
for complementary products as well, as observed in recent years for instance in the market for printers/ink cartridges. Motivated
by several measures the firms have taken in this market, the current paper analyzes whether firms are interested in protecting
their complementary product from outside competition. We find that firms protect their products only if consumers underestimate
the demand for the complementary product when deciding which core product to buy. Moreover, we investigate how the decision
to protect the complementary product interacts with a firm’s pricing decision. We show that the price policy proposed in the
business literature should only be applied, if consumers sufficiently underestimate their demand for the complementary product
so that firms strongly protect these products from outside competition. |
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