STRATEGIC SUBSTITUTES AND STRATEGIC COMPLEMENTS WITH INTERDEPENDENT DEMANDS

Strategic substitutes and complements have become standard tools of an alysis in industrial organization. Bulow et al. (1985) original model which introduced these concepts focused on multimarket oligopoly. Buil ding upon that model, this paper shows that there becomes not one but two strategic interaction terms if the demands between markets is inte rdependent and the firms compete in prices. This new model is applied to the telecommunications industry, where the local exchange carriers face competition from competitive access providers. The theoretical mo del shows the critical variables in the local exchange carriers' strat egic pricing decision.