NETWORK EXTERNALITIES, DOMINANT VALUE MARGINS, AND EQUILIBRIUM UNIQUENESS

Jay Pil Choi and Christodoulos Stefanadis

International Economic Review, 2022, vol. 63, issue 4, 1805-1827

Abstract: We examine tippy network markets that accommodate price discrimination. The analysis shows that when a mild equilibrium refinement, the monotonicity criterion, is adopted, network competition may have a unique subgame‐perfect equilibrium regarding the winner's identity; the prevailing brand may be fully determined by its product features. We bring out the concept of the dominant value margin, which is a metric of the effectiveness of divide‐and‐conquer strategies. The supplier with the larger dominant value margin may always sell to all customers in equilibrium. Such a market outcome is not necessarily socially efficient.

Date: 2022
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https://doi.org/10.1111/iere.12587

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Working Paper: Network Externalities, Dominant Value Margins, and Equilibrium Uniqueness (2022)
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