FUNCTIONAL DEGRADATION AND ASYMMETRIC NETWORK EFFECTS*

Gergely Csorba () and Jong-Hee Hahn

Journal of Industrial Economics, 2006, vol. 54, issue 2, 253-268

Abstract: In markets subject to network effects, firms often remove some functions of their original products and sell a functionally‐downgraded version at a lower or zero price. This paper aims to provide a pure network effect based explanation of such a practice. Building a functional degradation model with asymmetric network effects, we investigate when and why firms have incentives to introduce a functionally‐degraded good and discuss its welfare implication.

Date: 2006
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