Nonlinear Pricing with Network Externalities and Countervailing Incentives
AbstractThis paper considers the screening problem faced by a monopolist of a network good in a general setting. We demonstrate that the joint presence of asymmetric information and network externalities revise the "no distortion on the top" and "one-way distortion" principle. The pattern of consumption distortions crucially depends on the congestion of the network. It exhibits one-way distortion in un-congestible network and two-way distortion in congestible network. The countervailing incentives problem from potential entry threat is also analyzed. As the competitiveness of the outside competitors increases, the incumbent firm should adjust its nonlinear pricing scheme accordingly, which will distort the allocations of both types.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 41212.
Date of creation: Jan 2008
Date of revision: Aug 2008
Nonlinear pricing; network externalities; countervailing incentives; type-dependent reservation utility;
Find related papers by JEL classification:
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
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