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Network Markets and Consumers Coordination

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Author Info
Attila Ambrus (Dept. Economics, Harvard University)
Rossella Argenziano (Dept. Economics, Yale University)

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Abstract

This paper assumes that groups of consumers in network markets can coordinate their choices when it is in their best interest to do so, and when coordination does not require communication. It is shown that multiple asymmetric networks can coexist in equilibrium if consumers have heterogeneous reservation values. A monopolist provider might choose to operate multiple networks to price differentiate consumers on both sides of the market. Competing network providers might operate networks such that one of them targets high reservation value consumers on one side of the market, while the other targets high reservation value consumers on the other side. Firms can obtain positive profits in price competition. In these asymmetric equilibria product differentiation is endogenized by the network choices of consumers. Heterogeneity of consumers is necessary for the existence of this type of equilibrium.

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File URL: http://cowles.econ.yale.edu/P/cd/d14b/d1481.pdf
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Publisher Info
Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 1481.

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Length: 45 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:cwl:cwldpp:1481

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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Related research
Keywords: Coalitional agreements coordination network externalities optimal pricing platform competition price discrimination two-sided markets

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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D62 - Microeconomics - - Welfare Economics - - - Externalities
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. JULLIEN, Bruno, 2000. "Competing in Network Industries: Divide and Conquer," IDEI Working Papers 112, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jul 2001. [Downloadable!]
  2. Caillaud, Bernard & Jullien, Bruno, 2001. "Competing cybermediaries," European Economic Review, Elsevier, vol. 45(4-6), pages 797-808, May. [Downloadable!] (restricted)
  3. Mark Armstrong Author-Email: mark.armstrong@ucl.ac.uk, 2006. "Competition in Two-Sided Markets," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 668-691, Autumn.
    Other versions:
  4. ROCHET, Jean-Charles & TIROLE, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
  5. Segal, Ilya, 2003. "Coordination and discrimination in contracting with externalities: divide and conquer?," Journal of Economic Theory, Elsevier, vol. 113(2), pages 147-181, December. [Downloadable!] (restricted)
  6. Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-28, Summer.
  7. Glenn Allison & Drew Fudenberg, 2002. "Competing Auctions," Harvard Institute of Economic Research Working Papers 1960, Harvard - Institute of Economic Research. [Downloadable!]
    Other versions:
  8. Damiano, Ettore & Li, Hao, 2005. "Competing Matchmaking," Micro Theory Working Papers damiano-05-01-25-10-08-07, Microeconomics.ca Website, revised 18 Oct 2005. [Downloadable!]
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  9. Bental, Benjamin & Spiegel, Menahem, 1995. "Network Competition, Product Quality, and Market Coverage in the Presence of Network Externalities," Journal of Industrial Economics, Blackwell Publishing, vol. 43(2), pages 197-208, June. [Downloadable!] (restricted)
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  11. Innes, Robert & Sexton, Richard J., 1993. "Customer coalitions, monopoly price discrimination and generic entry deterrence," European Economic Review, Elsevier, vol. 37(8), pages 1569-1597, December. [Downloadable!] (restricted)
  12. Hao Li, 2003. "Price Discrimination in Matching Markets," Theory workshop papers 505798000000000028, UCLA Department of Economics. [Downloadable!]
  13. Jean-Charles Rochet & Jean Tirole, 2002. "Cooperation Among Competitors: Some Economics Of Payment Card Associations," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 549-570, Winter.
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  15. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August. [Downloadable!] (restricted)
  16. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June. [Downloadable!] (restricted)
  17. Economides, Nicholas, 1996. "The economics of networks," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 673-699, October. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Damiano, Ettore & Li, Hao, 2005. "Competing Matchmaking," Micro Theory Working Papers damiano-05-01-25-10-08-07, Microeconomics.ca Website, revised 18 Oct 2005. [Downloadable!]
    Other versions:
  2. JULLIEN, Bruno, 2004. "Two-Sided Markets and Electronic Intermediation," IDEI Working Papers 295, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  3. Péter Csóka & Jean-Jacques Herings & László Kóczy, 2006. "Coherent Measures of Risk from a General Equilibrium Perspective," IEHAS Discussion Papers 0611, Institute of Economics, Hungarian Academy of Sciences, revised 30 Aug 2006. [Downloadable!]
    Other versions:
  4. Iván Major, 2006. "Why do (or do not) banks share customer information? A comparison of mature private credit markets and markets in transition," IEHAS Discussion Papers 0603, Institute of Economics, Hungarian Academy of Sciences, revised 24 Apr 2006. [Downloadable!]
  5. Bruno Jullien, 2004. "Two-Sided Markets and Electronic Intermediaries," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  6. ROCHET, Jean-Charles & TIROLE, Jean, 2005. "Two-Sided Markets : A Progress Report," IDEI Working Papers 275, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
    • Jean-Charles Rochet Author-Email: rochet@cict.fr Author-Workplace-Name: IDEI, University of Toulouse & Jean Tirole Author-Email: tirole@cict.fr Author-Workplace-Name: IDEI, University of Toulouse, 2006. "Two-Sided Markets: A Progress Report," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 645-667, Autumn.
  7. András Simonovits, 2006. "Social Security Reform in the US: Lessons from Hungary," IEHAS Discussion Papers 0602, Institute of Economics, Hungarian Academy of Sciences, revised 24 Apr 2006. [Downloadable!]
  8. Gabor Virag, 2006. "Outside offers and bidding costs," IEHAS Discussion Papers 0610, Institute of Economics, Hungarian Academy of Sciences, revised 30 Aug 2006. [Downloadable!]
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