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Monopoly, Quality, and Network Externalities

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  • L. Lambertini
  • R. Orsini

Abstract

We describe the behaviour of a monopolist supplying a vertically di erentiated good with network externalities. Assuming a fixed cost of quality improvements we show that the presence of network externalities enhances the incentive to expand output associated with scale economies. Although the quality distortion operated by the monopolist increases with network externalities, the outputexpansion effect is dominant, so that the welfare loss due to monopoly power shrinks as the role of network externalities in determining consumers satisfaction becomes more relevant.

Suggested Citation

  • L. Lambertini & R. Orsini, 1998. "Monopoly, Quality, and Network Externalities," Working Papers 334, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:334
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    References listed on IDEAS

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    Cited by:

    1. Tsuyoshi Toshimitsu, 2007. "A Note on Quality Choice, Monopoly, and Network Externality," Journal of Industry, Competition and Trade, Springer, vol. 7(2), pages 131-142, June.
    2. Luca Lambertini & Raimondello Orsini, 2010. "R&D for Quality Improvement and Network Externalities," Networks and Spatial Economics, Springer, vol. 10(1), pages 113-124, March.
    3. Garcia Filomena, 2013. "When Should a Monopolist Improve Quality in a Network Industry?," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 13(1), pages 381-414, September.

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