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Price Competition and Product Differentiation when Goods have Network Effects

Author

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  • Conrad Klaus

    (University of Mannheim, Mannheim, Germany)

Abstract

The objective of our approach is to develop a model that captures horizontal product differentiation under environmental awareness with price competition whereby environmentally friendly products are costlier to produce. As an example, we refer to automobile producers offering cars with a gasoline-powered engine and one with a natural gas-powered engine. The network of petrol stations provides the complementary good. We use a two-stage game in prices and characteristics to analyse the market structure. In order to find out whether a private decision on the type of engine coincides with a socially optimal product differentiation, we determine the position of the two types of engine by a welfaremaximizing authority.

Suggested Citation

  • Conrad Klaus, 2006. "Price Competition and Product Differentiation when Goods have Network Effects," German Economic Review, De Gruyter, vol. 7(3), pages 339-361, August.
    • Handle: RePEc:bpj:germec:v:7:y:2006:i:3:p:339-361
    DOI: 10.1111/j.1468-0475.2006.00159.x
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    Cited by:

    1. Dominic Hauck & Erik Ansink & Jetske Bouma & Daan van Soest, 2014. "Social Network Effects and Green Consumerism," Tinbergen Institute Discussion Papers 14-150/VIII, Tinbergen Institute.

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