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Pricing Strategies of Goods with Externalities

Author

Listed:
  • Gordon, Mirta B.

    (Université Joseph Fourier)

  • Nadal, Jean-Pierre

    (Centre d'Analyse et de Mathématique Sociales)

  • Phan, Denis

    (Université Paris 4)

  • Semeshenko, Viktoriya

    (National Scientific and Technical Research Council, Buenos Aires)

Abstract

This paper summarizes the effects of social influences in a monopoly market with heterogeneous agents. The market equilibria are presented in the limiting case of global influence. Considering static profit maximization there may exist two different regimes: to sell either to a large fraction of customers at a low price, or to a small fraction of them at a higher price. This arises for numerous mono-modal distributions of idiosyncratic willingness to pay if the social influence is strong enough. The seller's optimal strategy switches from one regime to the other at parameter values where the demand has two different Nash equilibria; but the strategy of posting low prices to attract large fractions of buyers may fail due to a lack of coordination.

Suggested Citation

  • Gordon, Mirta B. & Nadal, Jean-Pierre & Phan, Denis & Semeshenko, Viktoriya, 2009. "Pricing Strategies of Goods with Externalities," European Journal of Economic and Social Systems, Lavoisier, vol. 22(1), pages 11-18.
    • Handle: RePEc:ris:ejessy:0059
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    Keywords

    Binary Choice; Complex Systems; Heterogeneous Interacting Agents; Neighborhood Effects; Social Influence; Monopoly; Externalities;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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