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A Fallacy of Dominant Price Vectors in Network Industries

  • Bolle Friedel

    ()

    (Europa Universität Viadrina Frankfurt, Oder)

  • Heimel Jana

    (Europa Universität Viadrina Frankfurt, Oder)

In German mobile phone contracts, calls in the provider's home net are usually less expensive than external calls (to the network of a competitor). Thus customers have to compare vectors of prices, and such a comparison can be the source of a fallacy in the presence of network externalities. Even if a provider with a lower market share requires lower prices for calls in the home as well as to other networks, his average price may be higher than that of a larger provider. Not being aware of this fact is called "a fallacy of dominant price vectors". Based on a questionnaire study this fallacy turns out to be a real phenomenon.

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Article provided by De Gruyter in its journal Review of Network Economics.

Volume (Year): 4 (2005)
Issue (Month): 3 (September)
Pages: 1-8

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Handle: RePEc:bpj:rneart:v:4:y:2005:i:3:n:2
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