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A Fallacy of Dominant Price Vectors in Network Industries

Friedel Bolle and Heimel Jana
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Heimel Jana: Europa Universität Viadrina Frankfurt, Oder

Review of Network Economics, 2005, vol. 4, issue 3, 1-8

Abstract: In German mobile phone contracts, calls in the provider's home net are usually less expensive than external calls (to the network of a competitor). Thus customers have to compare vectors of prices, and such a comparison can be the source of a fallacy in the presence of network externalities. Even if a provider with a lower market share requires lower prices for calls in the home as well as to other networks, his average price may be higher than that of a larger provider. Not being aware of this fact is called "a fallacy of dominant price vectors". Based on a questionnaire study this fallacy turns out to be a real phenomenon.

Date: 2005
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