Abstract

Network externality, which affects the value of many high-tech and Internet-related products, may have a critical impact on firm strategies. This paper focuses on the strategy selection of various players in a channel structure. We design a sequential game among two suppliers and a retailer. In the developed game and model, we provide two optional strategies to the retailer, whereas suppliers can impact retailer strategies with their own pricing. We found that (direct) network externality typically had a positive effect on firms. More important, we conclude that when the degree of product network externality from a weak supplier reaches a certain scale, a relatively stable state of competition is facilitated, which is more profitable compared with a collusion strategy. Otherwise, the two suppliers can still maintain a competition relationship. However, a collusion strategy may be more profitable than competition in the second case. In this article, we recommend an acquisition strategy as a sustainable and reasonable collusion strategy.

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