Nonlinear Pricing with Network Externalities and Countervailing Incentives

Dawen Meng and Guoqiang Tian

MPRA Paper from University Library of Munich, Germany

Abstract: This paper considers the screening problem faced by a monopolist of a network good in a general setting. We demonstrate that the joint presence of asymmetric information and network externalities revise the "no distortion on the top" and "one-way distortion" principle. The pattern of consumption distortions crucially depends on the congestion of the network. It exhibits one-way distortion in un-congestible network and two-way distortion in congestible network. The countervailing incentives problem from potential entry threat is also analyzed. As the competitiveness of the outside competitors increases, the incumbent firm should adjust its nonlinear pricing scheme accordingly, which will distort the allocations of both types.

Keywords: Nonlinear pricing; network externalities; countervailing incentives; type-dependent reservation utility (search for similar items in EconPapers)
JEL-codes: D42 D62 D82 (search for similar items in EconPapers)
Date: 2008-01, Revised 2008-08
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