Price Competition and Product Differentiation when Goods have Network Effects

Conrad Klaus
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Conrad Klaus: University of Mannheim,Mannheim, Germany

German Economic Review, 2006, vol. 7, issue 3, 339-361

Abstract: The objective of our approach is to develop a model that captures horizontal product differentiation under environmental awareness with price competition whereby environmentally friendly products are costlier to produce. As an example, we refer to automobile producers offering cars with a gasoline-powered engine and one with a natural gas-powered engine. The network of petrol stations provides the complementary good. We use a two-stage game in prices and characteristics to analyse the market structure. In order to find out whether a private decision on the type of engine coincides with a socially optimal product differentiation, we determine the position of the two types of engine by a welfaremaximizing authority.

Keywords: Price competition; quality competition; environmental awareness; network effects; automobiles (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1111/j.1468-0475.2006.00159.x

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