The welfare effect of quality degradation in the presence of network externalities
AbstractThis paper examines how the presence of network externalities affects a monopolistâs incentive for quality degradation and its welfare consequence. The software and the Internet service industries provide our primary motivation. The network externality may lead to a Pareto-improving quality degradation that would not be realised in the absence of network externalities. However, it may also overturn a potentially Paretoimproving quality degradation to a welfare-reducing one, or result in the realisation of a welfare-reducing quality degradation that would be avoided without network externalities. We also endogenise the firmâs forward and backward compatibility decisions between the original good and the degraded good. Key Words : Damaged Goods, Quality Degradation, Network Externalities, Compatibility,Price Discrimination, Software
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Bibliographic InfoArticle provided by Elsevier in its journal Information Economics and Policy.
Volume (Year): 16 (2004)
Issue (Month): 4 (December)
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Web page: http://www.elsevier.com/locate/inca/505549
Other versions of this item:
- Jong-Hee Hahn, 2001. "The Welfare Effect of Quality Degradation in the Presence of Network Externalities," Keele Department of Economics Discussion Papers (1995-2001) 2001/08, Department of Economics, Keele University, revised Feb 2003.
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
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