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Versioning Goods and Joint Purchases with Network Externality

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  • Jiangli Dou
  • Bing Ye

Abstract

This paper analyses the monopolist's production and pricing decisions on two vertically diffe-rentiated versions of a product in the presence of network externality. We show that offering only the higher-quality version of the product is the optimal strategy when negative externality exists and the utility from joint purchase is not large. If both versions are provided, the monopolist will charge a monopoly price for each version to induce separate purchases if these two versions are too close substitutes. Moreover, in the equilibrium with joint purchases, with an increase in externality or the utility from a joint purchase, the prices of both versions increase. In addition, with an in-crease in network externality, the equilibrium region for separate purchases first increases and then decreases.

Suggested Citation

  • Jiangli Dou & Bing Ye, 2019. "Versioning Goods and Joint Purchases with Network Externality," Prague Economic Papers, Prague University of Economics and Business, vol. 2019(4), pages 433-448.
    • Handle: RePEc:prg:jnlpep:v:2019:y:2019:i:4:id:702:p:433-448
    DOI: 10.18267/j.pep.702
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    References listed on IDEAS

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    More about this item

    Keywords

    versioning goods; vertical differentiation; joint purchase; network externality;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management

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