Versioning Goods and Joint Purchases with Network Externality

Jiangli Dou and Bing Ye

Prague Economic Papers, 2019, vol. 2019, issue 4, 433-448

Abstract: This paper analyses the monopolist's production and pricing decisions on two vertically diffe-rentiated versions of a product in the presence of network externality. We show that offering only the higher-quality version of the product is the optimal strategy when negative externality exists and the utility from joint purchase is not large. If both versions are provided, the monopolist will charge a monopoly price for each version to induce separate purchases if these two versions are too close substitutes. Moreover, in the equilibrium with joint purchases, with an increase in externality or the utility from a joint purchase, the prices of both versions increase. In addition, with an in-crease in network externality, the equilibrium region for separate purchases first increases and then decreases.

Keywords: versioning goods; vertical differentiation; joint purchase; network externality (search for similar items in EconPapers)
JEL-codes: D21 D42 L12 L25 M11 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.18267/j.pep.702

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