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Local Network Externalities and Market Segmentation

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

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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://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/publications/twerp_725.pdf
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Publisher Info
Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 725.

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Length: 29 pages
Date of creation: 2005
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Handle: RePEc:wrk:warwec:725

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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

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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)
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  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!]
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