Multimarket Oligopoly: Strategic Substitutes and Complements

A firm’s actions in one market can change competitors’ strategies in a second market, by affecting its own marginal costs in that other market. Whether the action provides costs or benefits in the second market depends on (a) whether it increases or decreases marginal costs in the second market and (b) whether competitors’ products are strategic substitutes or strategic complements. The latter distinction is determined by whether more “aggressive” play (e.g., lower price or higher quantity) by one firm in a market lowers or raises competing firms’ marginal profitabilities in that market. Many recent results in oligopoly theory can be most easily understood in terms of strategic substitutes and complements.