The Korean Economic Review
Sequential Pricing in Successive or Bilateral Monopolies with Separate Consumer Groups
Jong-Hee Hahn (Yonsei University) and Youngjun Lee (University of Rochester)Year 2023Vol. 39No. 2
This paper considers vertical bilateral monopolies facing two consumer groups with different demands for the final product composed of two perfect complements. In contrast to traditional theories, second-mover advantages may appear, and sequential pricing is superior to simultaneous pricing in terms of welfare. This phenomenon occurs because the standard first-mover advantage is eroded in the bilateral pricing game due to the follower’s threat of shutting down the smaller market. The follower may wish to commit to uniform pricing to take advantage of its strategic position.