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Monopoly pricing with network externalities

  • Cabral, Luis M. B.
  • Salant, David J.
  • Woroch, Glenn A.

How should a monopolist price a durable good or a new technology that is subject to network externalities? In particular, should the monopolist set a low "introductory price" to attract a "critical mass" of adopters? In this paper, we provide intuition as to when and why introductory pricing might occur in the presence of network externalities. Incomplete information about demand or asymmetric information about costs are necessary for introductory pricing to occur in equilibrium.

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File URL: http://www.sciencedirect.com/science/article/B6V8P-3V8TNR0-9/2/248fdce7be202f1f39f85e610e225592
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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 17 (1999)
Issue (Month): 2 (February)
Pages: 199-214

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Handle: RePEc:eee:indorg:v:17:y:1999:i:2:p:199-214
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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