Heterogeneous Consumer Expectations and Monopoly Pricing for Durables with Network Externalities

Keisuke Hattori and Yusuke Zennyo

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies the optimal pricing and diffusion of durable goods that exhibit positive network externalities, when consumers are heterogeneous in their expectations about future network sizes. We consider the existence of naive consumers, as well as of sophisticated consumers having fulfilled expectations. We find that the firm charges the sequential-diffusion pricing that makes sophisticated consumers function as early adopters, unless consumers quickly become bored with using the goods and/or unless the firm heavily discounts its future profits. We also compare the profitability of three possible pricing strategies with different commitment powers: fixed, responsive, and pre-announced pricing.

Keywords: durable goods; network externalities; diffusion process; consumer naivete; dynamic pricing (search for similar items in EconPapers)
JEL-codes: D21 D42 L12 L14 (search for similar items in EconPapers)
Date: 2018-04-15, Revised 2018-11-08
New Economics Papers: this item is included in nep-com, nep-mic, nep-net, nep-ore and nep-reg
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:89893

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