Note on Excess Capacity in a Monopoly Market with Network Externalities

Tsuyoshi Toshimitsu

Journal of Industry, Competition and Trade, 2021, vol. 21, issue 3, No 5, 422 pages

Abstract: Abstract Using a capacity-then-production choice model, we consider whether excess capacity results hold, when there is one provider, i.e., a monopoly or a public firm, in a network product and service market. In the case of a monopoly, if consumers form expectations of network sizes after (before) a capacity-scale decision, the capacity scale is larger than (equal to) the production quantity. Thus, excess capacity results hold (do not hold). Furthermore, in the case of a public firm, excess capacity results do not hold, irrespective of the timing of consumer expectations. However, this result depends on the specification of the utility function.

Keywords: Consumer expectation, Capacity-then-production choice, Network externality, Monopoly; Public firm (search for similar items in EconPapers)
JEL-codes: D42 L12 L15 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10842-021-00363-7

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