Endogenous Expectations Management with Network Effects: A Note

Choi Kangsik () and Lim Seonyoung ()
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Choi Kangsik: Graduate School of International Studies, Pusan National University, Busandaehak-ro 63 beon-gil 2, Geumjeong-gu, Pusan 46241, Republic of Korea
Lim Seonyoung: Department of Economics, Mokpo National University, 1666 Yeongsan-ro, Cheonggye-myeon, Muan-gun 58554, Jeollanam-do, Republic of Korea

The B.E. Journal of Theoretical Economics, 2022, vol. 22, issue 2, 649-668

Abstract: We examine the endogenous choice of commitment device to consumers’ expectations with network effects. Under Cournot competition, we show that choosing commitment to expectations for each firm is a dominant strategy regardless of the strength of network effects. However, under Bertrand competition, three types of commitment with both/no commitment/multiple emerge in equilibrium depending on the strength of network effects. Thus, we obtain different Pareto efficiency between Bertrand and Cournot competition, depending on the intensity of competition.

Keywords: expectations; commitment; network effect; Bertrand; Cournot (search for similar items in EconPapers)
JEL-codes: D43 L13 M21 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1515/bejte-2021-0046

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