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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26012
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| Title: | Dynamic Price Competition with Network Effects |
| Authors: | Cabral, Luis |
| Issue Date: | Jan-2008 |
| Series/Report no.: | EC-08-04 |
| Abstract: | I consider a dynamic model of competition between two proprietary
networks. Consumers die and are replaced with a constant hazard rate.
Firms compete for new consumers to join their network by offering
network entry prices (which may be below cost). New consumers have a
privately known preference for each network. Upon joining a network, in
each period consumers enjoy a benefit which is increasing in network
size during that period. Firms receive revenues from new consumers as
well as from consumers already belonging to their network. Using a
combination of analytical and numerical methods, I discuss various
properties of the equilibrium. I show that very small or very large
networks tend to price higher than networks of intermediate size. I also
show that, around symmetric states, the gap between the large and the
small network tends to widen (increasing dominance) whereas the opposite
is true (reversion to the mean) around very asymmetric states. |
| URI: | http://hdl.handle.net/2451/26012 |
| Appears in Collections: | Economics Working Papers
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