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Endogenous Expectations Management with Network Effects: A Note

Author

Listed:
  • Choi Kangsik

    (Graduate School of International Studies, Pusan National University, Busandaehak-ro 63 beon-gil 2, Geumjeong-gu, Pusan, 46241, Republic of Korea)

  • Lim Seonyoung

    (Department of Economics, Mokpo National University, 1666 Yeongsan-ro, Cheonggye-myeon, Muan-gun, 58554, Jeollanam-do, Republic of Korea)

Abstract

We examine the endogenous choice of commitment device to consumers’ expectations with network effects. Under Cournot competition, we show that choosing commitment to expectations for each firm is a dominant strategy regardless of the strength of network effects. However, under Bertrand competition, three types of commitment with both/no commitment/multiple emerge in equilibrium depending on the strength of network effects. Thus, we obtain different Pareto efficiency between Bertrand and Cournot competition, depending on the intensity of competition.

Suggested Citation

  • Choi Kangsik & Lim Seonyoung, 2022. "Endogenous Expectations Management with Network Effects: A Note," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 22(2), pages 649-668, June.
    • Handle: RePEc:bpj:bejtec:v:22:y:2022:i:2:p:649-668:n:4
    DOI: 10.1515/bejte-2021-0046
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    More about this item

    Keywords

    expectations; commitment; network effect; Bertrand; Cournot; D43; L13; M21;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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