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Entry into a Network Industry: Consumers' Expectations and Firms' Pricing Policies

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  • Baglioni Angelo

    () (Catholic University Milan)

Abstract

Entry into a network industry is modeled focusing on consumers' expectations formation through higher order beliefs. Equilibrium expectations are endogenous and depend on prices, acting as a coordination device among consumers. The model is able to account for aggressive pricing policies by the incumbent and by the entrant. Both exclusion and entry are possible outcomes (depending on parameter values). The threat of entry is beneficial to consumers, even when unsuccessful.

Suggested Citation

  • Baglioni Angelo, 2008. "Entry into a Network Industry: Consumers' Expectations and Firms' Pricing Policies," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-13, July.
  • Handle: RePEc:bpj:bejeap:v:8:y:2008:i:1:n:23
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    References listed on IDEAS

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    1. Stephen Morris & Hyun Song Shin, 2000. "Global Games: Theory and Applications," Cowles Foundation Discussion Papers 1275, Cowles Foundation for Research in Economics, Yale University.
    2. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September.
    3. Liliane Karlinger & Massimo Motta, 2007. "Exclusionary Pricing and Rebates When Scale Matters," Economics Working Papers ECO2007/30, European University Institute.
    4. Matthew Mitchell & Andrzej Skrzypacz, 2006. "Network externalities and long-run market shares," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 621-648.
    5. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-841, August.
    6. Kate Adriaan Ten & Niels Gunnar, 2006. "Fulfilled-expectations Equilibria in Network Demand," Review of Network Economics, De Gruyter, pages 1-17.
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    Cited by:

    1. Sandro Brusco & Luca Colombo & Umberto Galmarini, 2010. "Local Governments Tax Autonomy, Lobbying, and Welfare," Department of Economics Working Papers 10-01, Stony Brook University, Department of Economics.
    2. Angelo Baglioni, 2006. "Entry into a network industry: consumers’ expectations and firms’ pricing policies," DISCE - Quaderni dell'Istituto di Economia e Finanza ief69, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    3. Maria Flavia Ambrosanio & Massimo Bordignon & Floriana Cerniglia, 2010. "Constitutional Reforms, Fiscal Decentralization and Regional Fiscal Flows in Italy," Chapters,in: The Political Economy of Inter-Regional Fiscal Flows, chapter 4 Edward Elgar Publishing.
    4. Luca Colombo & Herbert Dawid & Kordian Kabus, 2012. "When do thick venture capital markets foster innovation? An evolutionary analysis," Journal of Evolutionary Economics, Springer, vol. 22(1), pages 79-108, January.
    5. Stefano Colombo, 2008. "Discriminatory prices, endogenous locations and the Prisoner Dilemma problem," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0079, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    6. Baglioni, Angelo & Monticini, Andrea, 2010. "The intraday interest rate under a liquidity crisis: The case of August 2007," Economics Letters, Elsevier, vol. 107(2), pages 198-200, May.
    7. Csorba, Gergely, 2008. "Contracting with asymmetric information in the presence of positive network effects: Screening and divide-and-conquer techniques," Information Economics and Policy, Elsevier, vol. 20(1), pages 54-66, March.
    8. Giuseppe Mastromatteo, 2011. "H.P. Minsky And Policies To Countervail Crises," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0102, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    9. Giuseppe Mastromatteo, 2011. "The Debate on the Crisis: Recent Reappraisals of the Concept of Functional Finance," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0105, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).

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