Lagged Network Externalities and Rationing in a Software Monopoly
AbstractThe paper presents a model of a software monopolist who benefits from a lagged network externality arising from consumers' feedback through the so-called bug-fixing effect. That is, the software producer is able to correct errors in the software code detected by previous users, improving her products over time. Another feature of the model is that it responds to the short life cycle of software products, implying time-of-purchase depending utility functions, which are in contrast to the usual durable goods models. Both of these modifications are incorporated in a standard two-periods durable goods monopoly, analysing questions of introductory pricing and quantity rationing. The model suggests that neither of these two instruments is able to explain why we see so much free software in the markets.
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Bibliographic InfoPaper provided by Institute for Advanced Studies in its series Economics Series with number 120.
Length: 16 pages
Date of creation: Jul 2002
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Find related papers by JEL classification:
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
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.:
- Juan Ruiz, 2003. "Another Perspective on Planned obsolescence: is there really too much Innovation?," Industrial Organization 0302001, EconWPA.
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- Allen, Franklin & Faulhaber, Gerald R, 1991. "Rational Rationing," Economica, London School of Economics and Political Science, vol. 58(230), pages 189-98, May.
- Ritzberger, Klaus, 2002. "Foundations of Non-Cooperative Game Theory," OUP Catalogue, Oxford University Press, number 9780199247868.
- Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
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