Inviting Competition to Achieve Critical Mass

Etziony Amir and Avi Weiss
Additional contact information
Etziony Amir: Hewlett Packard, Israel

Review of Network Economics, 2012, vol. 11, issue 2, 22

Abstract: In this paper we analyze a network market in which it is beneficial for a producer to invite competitors to share a market, even when this is not needed in order to affect consumer beliefs. Because of the nature of such goods, the demand curve for network markets typically rises and then falls. If the marginal cost curve of the producer is also upwardly sloping, the firm may be either unable to profitably produce a sufficient quantity to satisfy demand at any price, or may be able to, but benefit more if there are other producers also. Interestingly, optimal behavior by the producer is independent of the type of competition that will exist between the firms after the competitors have entered the market. Because the firm controls the number of entrants, it can always guarantee that it will receive maximal profits given the demand function and its technology. Implications for antitrust legislation and for strategic behavior by the firm are discussed.

Keywords: network market; critical mass; network externalities (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/1446-9022.1219 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Working Paper: Inviting Competition to Achieve Critical Mass (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:rneart:v:11:y:2012:i:2:n:4

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/rne/html

DOI: 10.1515/1446-9022.1219

Access Statistics for this article

Review of Network Economics is currently edited by Lukasz Grzybowski

More articles in Review of Network Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().