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Nonlinear Pricing with Network Externalities and Countervailing Incentives

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  • Meng, Dawen
  • Tian, Guoqiang

Abstract

This 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.

Suggested Citation

  • Meng, Dawen & Tian, Guoqiang, 2008. "Nonlinear Pricing with Network Externalities and Countervailing Incentives," MPRA Paper 41212, University Library of Munich, Germany, revised Aug 2008.
    • Handle: RePEc:pra:mprapa:41212
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    References listed on IDEAS

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    More about this item

    Keywords

    Nonlinear pricing; network externalities; countervailing incentives; type-dependent reservation utility;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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