Network Externalities, Dominant Value Margins, and Equilibrium Uniqueness

Jay Pil Choi and Christodoulos Stefanadis

No 9717, CESifo Working Paper Series from CESifo

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 always socially efficient since a socially inferior supplier may prevail if has a stand-alone-benefit advantage and only a modest network-benefit disadvantage.

Keywords: network externalities; equilibrium uniqueness; price discrimination; monotonicity criterion; dominant value margin; divide and conquer (search for similar items in EconPapers)
JEL-codes: D43 L13 L40 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind, nep-mic, nep-net and nep-reg
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Related works:
Journal Article: NETWORK EXTERNALITIES, DOMINANT VALUE MARGINS, AND EQUILIBRIUM UNIQUENESS (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9717

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