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Network Markets and Consumer Coordination

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  • Attila Ambrus

    ()
    (Department of Economics,Harvard University, Cambridge)

  • Rosella Argenziano

    ()
    (Department of Economics, Yale University, New Haven)

Abstract

This paper analyzes pricing decisions and competition in network markets, assuming that groups of consumers can coordinate their choices when it is in their interest, if coordination does not require communication. It is shown that multiple asymmetric networks can coexist in equilibrium. A monopolist might operate multiple ex ante identical networks to price differentiate. In Bertrand competition different firms might target high reservation value consumers on different sides of the market. Firms can obtain positive profits in price competition. Product differentiation in equilibrium is endogenized by consumers' network choices. Enough heterogeneity in reservation values is necessary for existence of these asymmetric equilibria.

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Bibliographic Info

Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0423.

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Length: 51 pages
Date of creation: Dec 2004
Date of revision:
Handle: RePEc:has:discpr:0423

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Keywords: two-sided markets; network externalities; platform competition; coordination;

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References

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  1. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(4), pages 990-1029, 06.
  2. Damiano, Ettore & Li, Hao, 2005. "Competing Matchmaking," Microeconomics.ca working papers, Vancouver School of Economics damiano-05-01-25-10-08-07, Vancouver School of Economics, revised 18 Oct 2005.
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  5. 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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  13. Jullien, Bruno, 2000. "Competing in Network Industries: Divide and Conquer," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 112, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jul 2001.
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Citations

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Cited by:
  1. Csóka, Péter & Herings, P. Jean-Jacques & Kóczy, László Á., 2006. "Coherent Measures of Risk from a General Equilibrium Perspective," Research Memorandum 016, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  2. Bruno Jullien, 2004. "Two-Sided Markets and Electronic Intermediaries," CESifo Working Paper Series 1345, CESifo Group Munich.
  3. András Simonovits, 2006. "Social Security Reform in the US: Lessons from Hungary," IEHAS Discussion Papers, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences 0602, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences, revised 24 Apr 2006.
  4. Jullien, Bruno, 2004. "Two-Sided Markets and Electronic Intermediation," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 295, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Jullien, Bruno, 2010. "Two-Sided B2B Platforms," TSE Working Papers, Toulouse School of Economics (TSE) 11-223, Toulouse School of Economics (TSE), revised Mar 2011.
  6. 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, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences 0603, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences, revised 24 Apr 2006.
  7. Kurucu, Gokce, 2007. "Negative Network Externalities in Two-Sided Markets: A Competition Approach," MPRA Paper 9746, University Library of Munich, Germany.
  8. Rochet, Jean-Charles & Tirole, Jean, 2005. "Two-Sided Markets : A Progress Report," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 275, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. Gabor Virag, 2006. "Outside offers and bidding costs," IEHAS Discussion Papers, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences 0610, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences, revised 30 Aug 2006.

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