Working Paper: NBER ID: w22811
Authors: Steven Berry; Philip Haile; Mark Israel; Michael Katz
Abstract: The distinction between complements, substitutes, and independent goods is important in many contexts. It is well known that when consumers’ conditional indirect utilities for two goods are superadditive, the goods are gross complements. Generalizing insights in Gans and King (2006) and Gentzkow (2007), we show that superadditivity between one pair of goods can also introduce complementarity between competing pairs of goods. One implication is that lower prices can result from a merger between producers of goods that themselves offer no superadditivity.
Keywords: No keywords provided
JEL Codes: L13; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| superadditivity of conditional indirect utilities (D11) | complementarity between goods (D10) |
| lowering the price of good a (D41) | increase demand for good b (D12) |
| superadditivity (D10) | negative cross-price elasticities between goods (D11) |
| mergers between producers of goods without superadditivity (L11) | reduced prices (P22) |
| superadditivity among varieties within categories (D80) | complementarity across these varieties (L15) |