Price-Setting Behavior in the Presence of Social Interactions
We consider a market with a profit-maximizing monopolistic firm. Utility-maximizing consumers either buy one unit of the good or none at all. The demand for the good is influenced by local social interactions. That is, the utility which a consumer derives from the consumption of the good depends positively on the fraction of other consumers in his own social group that consume the good. We first consider a benchmark case where the population of consumers is not segmented and constitutes one social group. We derive the optimal price and profit of the firm for this case. Next, we analyse the optimal price and profit for the case where the population of consumers is partitioned into two different social groups. Comparing the results for the cases with one and two social groups, it turns out that the partition into groups does not unambiguously gives the firm the opportunity to raise its price and increase its profit. The effects depend on a non-trivial interplay between the strength of the social interaction effect and the specific composition of the social groups.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 226 (2006)
Issue (Month): 2 (April)
|Contact details of provider:|| Web page: https://www.degruyter.com|
|Order Information:||Web: https://www.degruyter.com/view/j/jbnst|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Grilo, Isabel & Shy, Oz & Thisse, Jacques-Francois, 2001.
"Price competition when consumer behavior is characterized by conformity or vanity,"
Journal of Public Economics,
Elsevier, vol. 80(3), pages 385-408, June.
- GRILO, Isabel & SHY, Oz & THISSE, Jacques-François, "undated". "Price competition when consumer behavior is characterized by conformity or vanity," CORE Discussion Papers RP 1518, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- GRILO, Isabel & SHY, Oz & THISSE, Jacques-François, 1997. "Price competition when consumer behavior is characterized by conformity or vanity," CORE Discussion Papers 1997032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Evans, William N & Oates, Wallace E & Schwab, Robert M, 1992. "Measuring Peer Group Effects: A Study of Teenage Behavior," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 966-991, October.
- Shy,Oz, 2001. "The Economics of Network Industries," Cambridge Books, Cambridge University Press, number 9780521805001.
- Shy,Oz, 2001. "The Economics of Network Industries," Cambridge Books, Cambridge University Press, number 9780521800952, September.
- Baake, Pio & Boom, Anette, 2001. "Vertical product differentiation, network externalities, and compatibility decisions," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 267-284, January.
- Anette Boom & Pio Baake, "undated". "Vertical Product Differentiation, Network Externalities, and Compatibility Decisions," Papers 010, Departmental Working Papers.
- George A. Akerlof, 1997. "Social Distance and Social Decisions," Econometrica, Econometric Society, vol. 65(5), pages 1005-1028, September.
- Glenn Ellison & Drew Fudenberg, 2000. "The Neo-Luddite's Lament: Excessive Upgrades in the Software Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 253-272, Summer.
- Glenn Ellison & Drew Fudenberg, 1999. "The Neo-Luddite's Lament: Excessive Upgrades in the Software Industry," Harvard Institute of Economic Research Working Papers 1870, Harvard - Institute of Economic Research.
- Cabral, Luis M. B. & Salant, David J. & Woroch, Glenn A., 1999. "Monopoly pricing with network externalities," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 199-214, February.
When requesting a correction, please mention this item's handle: RePEc:jns:jbstat:v:226:y:2006:i:1:p:208-228. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.