Network Markets and Consumers Coordination

Attila Ambrus and Rossella Argenziano
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Attila Ambrus: Dept. Economics, Harvard University

No 1481, Cowles Foundation Discussion Papers from Cowles Foundation, Yale University

Abstract: This paper assumes that groups of consumers in network markets can coordinate their choices when it is in their best interest to do so, and when coordination does not require communication. It is shown that multiple asymmetric networks can coexist in equilibrium if consumers have heterogeneous reservation values. A monopolist provider might choose to operate multiple networks to price differentiate consumers on both sides of the market. Competing network providers might operate networks such that one of them targets high reservation value consumers on one side of the market, while the other targets high reservation value consumers on the other side. Firms can obtain positive profits in price competition. In these asymmetric equilibria product differentiation is endogenized by the network choices of consumers. Heterogeneity of consumers is necessary for the existence of this type of equilibrium.

Keywords: Coalitional agreements; coordination; network externalities; optimal pricing; platform competition; price discrimination; two-sided markets (search for similar items in EconPapers)
JEL-codes: D43 D62 L11 L14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-mic
Date: 2004-09
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Related works:
Working Paper: Network Markets and Consumer Coordination (2004)
Working Paper: Network Markets and Consumers Coordination (2004)
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