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Network effects, aftermarkets and the Coase conjecture: A dynamic Markovian approach

Didier Laussel (), Ngo Long and Joana Resende

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Abstract: This paper investigates the expansion of the network of a monopolist firm that produces a durable good and is also involved in the corresponding aftermarket. We characterize the Markov Perfect Equilibrium of the continuous time dynamic game played by the monopolist and the forward-looking consumers, under the assumption that consumers benefit from the subsequent expansion of the network. The paper contributes to the theoretical discussion on the validity of the Coase conjecture, analyzing whether Coase's prediction that the monopolist serves the market in a "twinkling of an eye" remains valid in our setup. We conclude that the equilibrium network development may actually be gradual, contradicting Coase's conjecture. We find that a necessary condition for such a result is the existence of aftermarket network effects that accrue (at least partly) to the monopolist firm.

Keywords: Aftermarkets; Coase conjecture; Durable good; Network externalities (search for similar items in EconPapers)
Date: 2015-07
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Citations: View citations in EconPapers (8)

Published in International Journal of Industrial Organization, 2015, 41 (C), pp.84--96. ⟨10.1016/j.ijindorg.2015.06.001⟩

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Journal Article: Network effects, aftermarkets and the Coase conjecture: A dynamic Markovian approach (2015) Downloads
Working Paper: Network Effects, Aftermarkets and the Coase Conjecture: A Dynamic Markovian Approach (2014) Downloads
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DOI: 10.1016/j.ijindorg.2015.06.001

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