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Equilibrium in Competing Networks with Differentiated Products

Author

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  • André de Palma

    (Université de Genève, Genève, Switzerland)

  • Luc Leruth

    (Asian Development Bank and Solvay Business School, Manilla, Philippines)

Abstract

We study “positive network externalities” in a horizontally differentiated industry. We show that a symmetric Nash equilibrium in prices exists if and only if the degree of product differentiation is sufficiently large. We also study the impact of larger or lower compatibility on equilibrium prices.

Suggested Citation

  • André de Palma & Luc Leruth, 1993. "Equilibrium in Competing Networks with Differentiated Products," Transportation Science, INFORMS, vol. 27(1), pages 73-80, February.
    • Handle: RePEc:inm:ortrsc:v:27:y:1993:i:1:p:73-80
    DOI: 10.1287/trsc.27.1.73
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    References listed on IDEAS

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    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(2), pages 217-235.
    2. Gabszewicz, Jean Jaskold & Thisse, Jacques-Francois, 1986. "On the Nature of Competition with Differentiated Products," Economic Journal, Royal Economic Society, vol. 96(381), pages 160-172, March.
    3. Farrell, Joseph & Saloner, Garth, 1986. "Installed Base and Compatibility: Innovation, Product Preannouncements, and Predation," American Economic Review, American Economic Association, vol. 76(5), pages 940-955, December.
    4. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    5. Jeffrey M. Perloff & Steven C. Salop, 1985. "Equilibrium with Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(1), pages 107-120.
    6. 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.
    7. Farrell, Joseph & Saloner, Garth, 1986. "Standardization and variety," Economics Letters, Elsevier, vol. 20(1), pages 71-74.
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    Cited by:

    1. de Palma, Andre & Leruth, Luc, 1996. "Variable willingness to pay for network externalities with strategic standardization decisions," European Journal of Political Economy, Elsevier, vol. 12(2), pages 235-251, September.
    2. Rossella Argenziano, 2008. "Differentiated networks: equilibrium and efficiency," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 747-769, September.
    3. repec:ebl:ecbull:v:12:y:2004:i:1:p:1-9 is not listed on IDEAS
    4. Joan Calzada & Tommaso M. Valletti, 2008. "Network Competition and Entry Deterrence," Economic Journal, Royal Economic Society, vol. 118(531), pages 1223-1244, August.
    5. Cantillon, Estelle & Yin, Pai-Ling, 2007. "How and when do markets tip? Lessons from the Battle of the Bund," Working Paper Series 766, European Central Bank.

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