|
Archive@NYU >
Stern School of Business >
Economics Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26164
|
| Title: | Pricing of Complementary Goods and Network Effects |
| Authors: | Economides, Nicholas
Viard, Brian |
| Keywords: | calibration
monopoly
network effects
complementary goods
software
Microsoft |
| Issue Date: | Oct-2007 |
| Series/Report no.: | EC-03-12 |
| Abstract: | We discuss the case of a monopolist of a base good in the presence of a
complementary good provided either by it or by another firm. We assess
and calibrate the extent of the influence on the profits from the base
good that is created by the existence of the complementary good. We
establish an equivalence between a model of a base and a complementary
good and a reduced-form model of the base good in which network effects
are assumed in the consumers' utility functions as a surrogate for the
presence of direct or indirect network effects, such as complementary
goods produced by other firms. We also assess and calibrate the
influence on profits of the intensity of network effects and quality
improvements in both goods. We evaluate the incentive that a monopolist
of the base good has to improve its quality rather than that of the
complementary good under different market structures. Finally, based on
our results, we discuss a possible explanation of the fact that
Microsoft Office has a significantly higher price than Microsoft Windows
although both products have comparable market shares. |
| URI: | http://hdl.handle.net/2451/26164 |
| Appears in Collections: | Economics Working Papers
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
