On the role of consumer expectations in markets with network effects

Irina Suleymanova and Christian Wey

No 13, DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: We analyze the role of consumer expectations in a Hotelling model of price competition when products exhibit network effects. Expectations can be strong (stubborn), weak (price-sensitive) or partially stubborn (a mix of weak and strong). As a rule, the price-sensitivity of demand declines when expectations are more stubborn. An increase of stubbornness i) reduces competition, ii) increases (decreases) the parameter region with a unique duopoly equilibrium (multiple equilibria), iii) reduces the conflict between consumer and social preferences for de facto standardization, and iv) reduces the misalignment between consumer and social preferences for compatibility.

Keywords: Network Effects; Expectations; Duopoly; Compatibility; Welfare (search for similar items in EconPapers)
JEL-codes: D43 D84 L13 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-com and nep-net
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: On the role of consumer expectations in markets with network effects (2012)
Working Paper: On the (Mis-) Alignment of Consumer and Social Welfare in Markets with Network Effects (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:13

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