Bertrand Competition under Network Externalities

Masaki Aoyagi

ISER Discussion Paper from Institute of Social and Economic Research, Osaka University

Abstract: Two firms engage in price competition to attract buyers located on a network. The value of the good of either firm to any buyer depends on the number of neighbors on the network who adopt the same good. When the size of externalities increases linearly with the number of adoptions, we identify the set of price strategies that are consistent with an equilibrium in which one of the firms monopolizes the market. The set includes marginal cost pricing as well as bipartition pricing, which offers discounts to some buyers and charges markups to others. We show that marginal cost pricing fails to be an equilibrium under non-linear externalities but identify conditions for an equilibrium with bipartition pricing to be robust against perturbations in the externalities from linearity. The idea of bipartition pricing is then applied to the analysis of platform competition in a two-sided market under local and approximately linear externalities.

Date: 2017-03
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic, nep-net and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.iser.osaka-u.ac.jp/library/dp/2017/DP0993.pdf

Related works:
Journal Article: Bertrand competition under network externalities (2018)
Working Paper: Bertrand Competition under Network Externalities (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:dpr:wpaper:0993

Access Statistics for this paper

More papers in ISER Discussion Paper from Institute of Social and Economic Research, Osaka University Contact information at EDIRC.
Bibliographic data for series maintained by Librarian ().