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Network Externalities, Demand Inertia and Dynamic Pricing in an Experimental Oligopoly Market

Ralph-C Bayer () and Mickey Chan
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Mickey Chan: University of Adelaide

Experimental from EconWPA

Abstract: This paper analyses dynamic pricing in markets with network externalities. Network externalities imply demand inertia, because the size of a network increases the usefulness of the product for consumers. Since past sales increase current demand, firms have an incentive to set low introductory prices to be able to increase prices as their networks grow. However, in reality we observe decreasing prices. This could be due to other factors dominating the network e¤ects. We use an experimental duopoly market with demand inertia to isolate the effect of network externalities. We find that experimental price dynamics are rather consistent with real world observations than with theoretical predictions.

Keywords: Network Externalities; Demand Inertia; Experiments; Oligopoly (search for similar items in EconPapers)
JEL-codes: L13 C92 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-exp, nep-gth, nep-ind and nep-net
Date: 2004-12-14
Note: Type of Document - pdf
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http://econwpa.repec.org/eps/exp/papers/0412/0412004.pdf (application/pdf)

Related works:
Journal Article: Network Externalities, Demand Inertia and Dynamic Pricing in an Experimental Oligopoly Market (2007) Downloads
Working Paper: Network Externalities, Demand Inertia and Dynamic Pricing in an Experimental Oligopoly Market (2004) Downloads
Working Paper: Network Externalities, Demand Inertia, and Dynamic Pricing in an Experimental Oligopoly Market (2004)
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