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Screening contracts in the presence of positive network effects

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  • Csorba, Gergely

Abstract

Based on the critical assumption of strategic complementarity, this paper builds a general model to describe and solve the screening problem faced by the monopolist seller of a network good. By applying monotone comparative static tools, we demonstrate that the joint presence of asymmetric information and positive network effects leads to a strict downward distortion for all consumers in the quantities provided. We also show that the equilibrium allocation is an increasing function of the intensity of network effects, and that a discriminating monopoly may supply large quantities for all consumers than a competitive industry.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 26 (2008)
Issue (Month): 1 (January)
Pages: 213-226

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Handle: RePEc:eee:indorg:v:26:y:2008:i:1:p:213-226

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Web page: http://www.elsevier.com/locate/inca/505551

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  1. Van Zandt, Timothy & Vives, Xavier, 2007. "Monotone equilibria in Bayesian games of strategic complementarities," Journal of Economic Theory, Elsevier, vol. 134(1), pages 339-360, May.
  2. Jong-Hee Hahn, 2000. "Nonlinear Pricing of Telecommunications with Call and Network Externalities," Keele Department of Economics Discussion Papers (1995-2001) 2000/15, Department of Economics, Keele University, revised Nov 2001.
  3. Doh-Shin Jeon & Domenico Menicucci, 2002. "Buyer Coalition Against Monopolistic Screening: On the Role of Asymmetric Information among Buyers," NajEcon Working Paper Reviews 506439000000000025, www.najecon.org.
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  7. Ilya Segal, 1999. "Contracting With Externalities," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 337-388, May.
  8. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
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  12. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-80, January.
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  14. Fudenberg, Drew & Tirole, Jean, 2000. "Pricing a Network Good to Deter Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 373-90, December.
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  16. Lockwood, B., 1999. "Production Externalities and Two-Way Distortion in Principal-Multi-Agent Problems," The Warwick Economics Research Paper Series (TWERPS) 527, University of Warwick, Department of Economics.
  17. Jullien, Bruno, 2000. "Competing in Network Industries: Divide and Conquer," IDEI Working Papers 112, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jul 2001.
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Cited by:
  1. Reisinger, Markus, 2014. "Two-part tariff competition between two-sided platforms," European Economic Review, Elsevier, vol. 68(C), pages 168-180.
  2. Meng, Dawen & Tian, Guoqiang, 2008. "Nonlinear Pricing with Network Externalities and Countervailing Incentives," MPRA Paper 41212, University Library of Munich, Germany, revised Aug 2008.
  3. 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.

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