Essays on Vertically Differentiated Markets for Complementary Goods

The purpose of this thesis is to shed light on how product complementarity affects the variety of possible equilibrium outcomes in a vertically differentiated market. Complementarity is not uncommon. Many vertically differentiated goods have value for the consumer as complements, that is only if they are used in combination with other goods which can also be of different qualities (e.g. piano with tuning service, business trip with hotel accommodation, computing platform with web browsing application, etc.). Complementarity between goods brings an exogenous expense that the consumer must pay on top of the price of any of the goods available in a vertically differentiated market. However, firms are only partially able to compensate consumers for the exogenous expense by charging lower prices. Some might also be prompted to increase the qualities of their goods. Then, however, the general validity of the maximum-differentiation choice cannot be taken for granted as in the classical no-complementarity case. How many firms will have positive market shares and whether they will serve all consumers at equilibrium cannot be decided based only on the distribution of the consumer identification characteristic~(income or taste). By taking this into account, this thesis reveals a set of possible equilibrium..