OPTIMAL PRICING IN NON-HOMOGENEOUS MARKET WITH NETWORK EXTERNALITIES

Uriel Spiegel, Uri Ben-Zion and Tchai Tavor
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Uriel Spiegel: Interdisciplinary Department of Social Sciences, Bar-Ilan University, and Visiting Professor, University of Pennsylvania
Uri Ben-Zion: BGU
Tchai Tavor: BGU

No 510, Working Papers from Ben-Gurion University of the Negev, Department of Economics

Abstract: The paper analyzes the options open to monopoly firms that sell software or internet service. We consider customers who have different reservation prices that are rectangularly distributed. The monopoly in general undertakes price discrimination between customers by producing two versions of the product, basic and advanced, where a zero price is charged for the lower quality product (i.e., the free version). The monopoly may also sell advertising space to increase revenues but may lose those customers that are annoyed by being exposed to compulsory advertising. We analyze the situation where the monopoly has an incentive to increase its output due to the network externality and allow free of charge basic service.

Keywords: Network Externality; Advertising; Basic and Advanced Service; Non-Homogeneous Customers (search for similar items in EconPapers)
Pages: 32 pages
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:bgu:wpaper:0510

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