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Household Demand, Network Externality Effects and Intertemporal Price Discrimination

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  • Winston T.H. Koh

    ()
    (School of Economics and Social Sciences, Singapore Management University)

Abstract

This paper examines the optimality of intertemporal price discrimination when network externality effects are present in the consumption of a durable good. We conduct our study in two settings. In a model with two household types, utilities are dependent on the cumulative proportion of households that have purchased the durable good. Next, in a model with a continuum of household types, we extend the analysis to the case where households consume both a durable good and a stream of non-durable goods. We show that in both settings, the presence of network externalities facilitates a sales strategy with intertemporal price discrimination.

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File URL: https://mercury.smu.edu.sg/rsrchpubupload/4913/IPD_network.pdf
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Bibliographic Info

Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 05-2005.

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Length: 23 pages
Date of creation: Mar 2005
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:05-2005

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Keywords: intertemporal price discrimination; durable good; household demand; network externality;

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  1. Ault, Richard W, et al, 2000. "Rebates, Inventories, and Intertemporal Price Discrimination," Economic Inquiry, Western Economic Association International, vol. 38(4), pages 570-78, October.
  2. Conlisk, John & Gerstner, Eitan & Sobel, Joel, 1984. "Cyclic Pricing by a Durable Goods Monopolist," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 489-505, August.
  3. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
  4. Varian, Hal R., 1989. "Price discrimination," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 10, pages 597-654 Elsevier.
  5. Locay, Luis & Rodriguez, Alvaro, 1992. "Price Discrimination in Competitive Markets," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 954-65, October.
  6. Clerides, Sofronis K., 2002. "Book value: intertemporal pricing and quality discrimination in the US market for books," International Journal of Industrial Organization, Elsevier, vol. 20(10), pages 1385-1408, December.
  7. Karp, L., 1992. "Depreciation erodes the coase conjecture," Discussion Paper Series In Economics And Econometrics 9210, Economics Division, School of Social Sciences, University of Southampton.
  8. Mason, Robin, 2000. "Network externalities and the Coase conjecture," European Economic Review, Elsevier, vol. 44(10), pages 1981-1992, December.
  9. Van Cayseele, Patrick, 1991. "Consumer rationing and the posssibility of intertemporal price discrimination," European Economic Review, Elsevier, vol. 35(7), pages 1473-1484, October.
  10. Sobel, Joel, 1984. "The Timing of Sales," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 353-68, July.
  11. Cabral, Luis M. B. & Salant, David J. & Woroch, Glenn A., 1999. "Monopoly pricing with network externalities," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 199-214, February.
  12. Stokey, Nancy L, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 355-71, August.
  13. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  14. Bensaid, Bernard & Lesne, Jean-Philippe, 1996. "Dynamic monopoly pricing with network externalities," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 837-855, October.
  15. Michael Landsberger & Isaac Meilijson, 1985. "Intertemporal Price Discrimination and Sales Strategy under Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 424-430, Autumn.
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