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Sufficient Decisions in Multi‐Sided and Multiproduct Markets
Author(s) -
Alexandrov Alexei,
Spulber Daniel F.
Publication year - 2017
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12159
Subject(s) - profit maximization , oligopoly , monopoly , microeconomics , maximization , profit (economics) , economics , transformation (genetics) , industrial organization , computer science , operations research , mathematical economics , business , cournot competition , mathematics , biochemistry , chemistry , gene
We show that in many models where firms make multiple decisions, analysis can be made more tractable by re‐formulating the model into one in which each firm makes a single choice, which we call a sufficient decision. The transformation allows application of standard techniques in these settings, including pass‐through for tax incidence and upward pricing pressure for merger analysis. The transformation works because the assumption of profit maximization links the firms’ decisions together. Examples include models of monopoly and oligopoly in two‐sided markets, where a natural sufficient decision may be the number of transactions that the firm facilitates, and multiproduct markets.