Buying Decision Coordination and Monopoly Pricing of Network Goods

Pekka Sääskilahti

Journal of Economics & Management Strategy, 2016, vol. 25, issue 2, 313-333

Abstract: We analyze how uncertainty about consumers' preferences affects the pricing of a network device and the interaction usage it enables. A premium device price may give high hardware profits, but adoption will be low reducing the profits from interaction services. The firm internalizing this adjusts its hardware price downward, and prices as if it was getting the maximal interaction usage profits from the full network. Profits decrease in uncertainty, whereas consumer surplus increases in uncertainty, but only if the level of uncertainty is high. Bundling the device and services is profitable if uncertainty relates mostly to consumers' private information.

Date: 2016
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https://doi.org/10.1111/jems.12138

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Working Paper: Buying Decision Coordination and Monopoly Pricing of Network Goods (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:25:y:2016:i:2:p:313-333

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