On excess capacity in a monopoly market with network externalities

Tsuyoshi Toshimitsu

No 220, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: Using a capacity-then-production choice model, we consider whether excess capacity results hold in a monopoly market with network externalities. We demonstrate that if consumers form expectations of network sizes after (before) the capacity-scale decision, the capacity scale is larger than (equal to) the production quantity. Furthermore, we examine the first-best and second-best policies and find that excess capacity results hold (do not hold) in the second-best (first-best) policy, irrespective of the timing of consumer expectations.

Keywords: consumer expectation; capacity-then-production choice; network externality; monopoly (search for similar items in EconPapers)
JEL-codes: D42 L12 L15 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2020-10
New Economics Papers: this item is included in nep-com, nep-ind and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:220

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