Network Externalities, Dominant Value Margins, and Equilibrium Uniqueness

Arbeitspapier

We examine tippy network markets that accommodate price discrimination. The analysis shows that when a mild equilibrium refinement, the monotonicity criterion, is adopted, network competition may have a unique subgame-perfect equilibrium regarding the winner’s identity; the prevailing brand may be fully determined by its product features. We bring out the concept of the dominant value margin, which is a metric of the effectiveness of divide-and-conquer strategies. The supplier with the larger dominant value margin may always sell to all customers in equilibrium. Such a market outcome is not always socially efficient since a socially inferior supplier may prevail if has a stand-alone-benefit advantage and only a modest network-benefit disadvantage.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 9717

Classification and Topics

• Classification: Wirtschaft ; Oligopoly and Other Imperfect Markets ; Antitrust Issues and Policies: General ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
• Subject: network externalities ; equilibrium uniqueness ; price discrimination ; monotonicity criterion ; dominant value margin ; divide and conquer

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Choi, Jay Pil ; Stefanadis, Christodoulos
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/260847
• Last update: 10.03.2025, 11:44 AM CET