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Optimal Monopoly Price Paths with Expanding Networks

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Author Info
Jean Gabszewicz (CORE - Université Catholique de Louvain)
Filomena Garcia () (UECE - Technical University of Lisbon)

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Abstract

In this paper, we survey the literature on optimal pricing of a monopolist operating on a network industry. We also describe explicitly the optimal path of prices for a monopolist facing an expanding demand due to the presence of network effects. The optimal path of prices appears as a function of the network effect intensity and horizon length. Prices are increasing over time and for very low network effect intensity, or very high horizon length, the monopolist will offer the good at zero price in the initial period.

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Publisher Info
Article provided by Concept Economics in its journal Review of Network Economics.

Volume (Year): 6 (2007)
Issue (Month): 1 (March)
Pages: 42-49
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Handle: RePEc:rne:rneart:v:6:y:2007:i:1:p:42-49

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Keywords: Network externalities; monopoly; pricing; dynamics;

References listed on IDEAS
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  1. Jeffrey Rohlfs, 1974. "A Theory of Interdependent Demand for a Communications Service," Bell Journal of Economics, The RAND Corporation, vol. 5(1), pages 16-37, Spring. [Downloadable!] (restricted)
  2. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring. [Downloadable!] (restricted)
    Other versions:
  3. Bensaid, Bernard & Lesne, Jean-Philippe, 1996. "Dynamic monopoly pricing with network externalities," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 837-855, October. [Downloadable!] (restricted)
  4. Jean J., GABSZEWICZ & Filomena, GARCIA, 2005. "A Note on Expanding Networks and Monopoly Pricing," Discussion Papers (ECON - Département des Sciences Economiques) 2005063, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
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  5. William P. Rogerson, 1983. "Reputation and Product Quality," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 508-516, Autumn. [Downloadable!] (restricted)
  6. Katz, Michael L & Shapiro, Carl, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring. [Downloadable!] (restricted)
  7. Cabral, Luis M. B. & Salant, David J. & Woroch, Glenn A., 1999. "Monopoly pricing with network externalities," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 199-214, February. [Downloadable!] (restricted)
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  8. Clarke, Frank H & Darrough, Masako N & Heineke, John M, 1982. "Optimal Pricing Policy in the Presence of Experience Effects," Journal of Business, University of Chicago Press, vol. 55(4), pages 517-30, October. [Downloadable!] (restricted)
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