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Local network externalities and market segmentation

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Author Info
A. Banerji () (Delhi School of Economics)
Bhaskar Dutta () (University of Warwick, UK)

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Abstract

This paper models interaction between groups of agents by means of a graph where each node represents a group of agents and an arc represents bilateral interaction. It departs from the standard Katz-Shapiro framework by assuming that network benefits are restricted only amongst groups of linked agents. It shows that even if rival firms engage in Bertrand competition, this form of network externalities permits strong market segmentation in which firms divide up the market and earn positive profits. The analysis also shows that some graphs or network structures do not permit such segmentation, while for others, there are easy to interpret conditions under which market segmentation obtains in equilibrium.

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File URL: http://www.isid.ac.in/~pu/dispapers/dp08-13.pdf
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Publisher Info
Paper provided by Indian Statistical Institute, New Delhi, India in its series Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers with number 08-13.

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Length: 30 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:ind:isipdp:08-13

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Related research
Keywords: network structure; network externalities; price competition; market segmentation;

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Find related papers by JEL classification:
D7 - Microeconomics - - Analysis of Collective Decision-Making

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. Choi, Jay Pil, 1994. "Network Externality, Compatibility Choice, and Planned Obsolescence," Journal of Industrial Economics, Blackwell Publishing, vol. 42(2), pages 167-82, June. [Downloadable!] (restricted)
    Other versions:
  2. 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.
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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. Sanjeev Goyal & Andrea Galeotti, 2007. "A Theory of Strategic Diffusion," Working Papers 2007.70, Fondazione Eni Enrico Mattei. [Downloadable!]
    Other versions:
  2. Sääskilahti, Pekka, 2007. "Monopoly pricing of social goods," MPRA Paper 3526, University Library of Munich, Germany. [Downloadable!]
Statistics
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