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Pricing a Network Good to Deter Entry

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Author Info

  • Fudenberg, Drew
  • Tirole, Jean

Abstract

This paper develops a model of pricing to deter entry by a sole supplier of a network good. We show that the installed user base of a network good can serve a preemptive function similar to that of an investment in capacity if the entrant's good is incompatible with the incumbent's good and there are network externalities in demand. Consequently, the threat of entry can lead the incumbent to set low prices. We identify some factors that should be considered in thinking about the welfare effects of entry deterrence in this and similar models. Copyright 2000 by Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

Volume (Year): 48 (2000)
Issue (Month): 4 (December)
Pages: 373-90

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Handle: RePEc:bla:jindec:v:48:y:2000:i:4:p:373-90

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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Cited by:
  1. Noemí Navarro, 2012. "Price and quality decisions under network effects," Cahiers de recherche 12-01, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  2. Marjit, Sugata & Mukherjee, Arijit, 2013. "Foreign competition and social efficiency of entry," Economic Modelling, Elsevier, vol. 32(C), pages 108-112.
  3. Gergely Csorba & Jong-Hee Hahn, 2006. "FUNCTIONAL DEGRADATION AND ASYMMETRIC NETWORK EFFECTS -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 54(2), pages 253-268, 06.
  4. Csorba, Gergely, 2008. "Screening contracts in the presence of positive network effects," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 213-226, January.
  5. Abraham, Martin, 2009. "Why reputation is not always beneficial: Tolerance and opportunism in business networks," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(6), pages 908-915, December.
  6. Wang, Leonard F.S. & Lee, Jen-yao & Hsu, Chu-chuan, 2014. "Privatization, foreign competition, and social efficiency of free entry," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 138-147.
  7. Jean-Jacques Herings, P. & Peeters, Ronald & Yang, Michael S., 2010. "Competition against peer-to-peer networks," Information Economics and Policy, Elsevier, vol. 22(4), pages 315-331, December.
  8. Hoppe, Heidrun C. & Lee, In Ho, 2003. "Entry deterrence and innovation in durable-goods monopoly," European Economic Review, Elsevier, vol. 47(6), pages 1011-1036, December.
  9. Jing, Bing, 2007. "Network externalities and market segmentation in a monopoly," Economics Letters, Elsevier, vol. 95(1), pages 7-13, April.
  10. Utaka, Atsuo, 2008. "Pricing strategy, quality signaling, and entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 878-888, July.

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