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This paper studies how product design and pricing strategies are affected by the existing relationship between the characteristics that integrate the product. The analysis shows that complementarity and low substitutability encourage the provision of quality incorporated to the products and increase the quality distortion and cannibalization problems that are common in segmented markets.A two-product strategy with a common attribute is shown to be a feasible strategy for reasons other than cost savings, namely attribute dependence. In addition, menu pricing is found to be the most profitable strategy, and a commonality strategy is more profitable than a common-product strategy.

This paper analyzes the optimal privatization policy when firms endogenously choose their strategic variable. The level of privatization is shown to determine: (i) the choice of strategic variable, whereby an asymmetric equilibrium could emerge (either Cournot–Bertrand or Bertrand–Cournot); (ii) the stability of equilibrium when the partially privatized firm and the private firm choose quantity and price respectively as the strategic variable; and (iii) the level of welfare, whereby Cournot–Cournot and Bertrand–Cournot games could lead to a greater welfare than the Bertrand–Bertrand model.