Market-dependent preferences, positive and negative network effects and welfare

Damien Gaumont, Yassine Badra and Detelina Kamburova

Mathematical Social Sciences, 2023, vol. 123, issue C, 143-154

Abstract: This article specifies the conditions on the utility function and on the cost function for which congestion or production overcapacity emerge in a market when information is perfect and prices are flexible. Consumers are of two types: Some appreciate a large production market, some do not. A typology underlines the shape of utility functions and cost functions which generate an optimal production overcapacity or an optimal congestion at the pure strategy Nash equilibrium. We show that the sign of the consumption externalities is endogenous. The result is independent of the nature (positive or negative) of the consumption externalities that affect the consumers’ preferences. A welfare analysis is performed. We underline the conditions under which the social planner chooses whether to clear the market or not. Application to a network economy is developed. Extensions to the following three cases are provided: (1) unsold stocks of goods with or without warehouse inventories, (2) quality of goods and (3) software markets.

Keywords: Consumer’s preferences; Monopoly; Network effects; Welfare (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165489623000185
Full text for ScienceDirect subscribers only

Related works:
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:eee:matsoc:v:123:y:2023:i:c:p:143-154

DOI: 10.1016/j.mathsocsci.2023.02.005

Access Statistics for this article

Mathematical Social Sciences is currently edited by J.-F. Laslier

More articles in Mathematical Social Sciences from Elsevier
Bibliographic data for series maintained by Catherine Liu ().