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Network Externality and the Coordination Problem: A Generalization of Rohlfs's Model

  • L. Lambertini
  • R. Orsini

We show that Rholfs's (1974) model is a special case of a spatial monopoly model à la Hotelling (1929) with quadratic transportation costs, where location is exogenous and the good yealds no intrinsic utility. By relaxing these assumptions, we prove that the coordination problem typically thought to affect markets for network goods may not arise in general. Endogenizing location makes it easier for the monopolist to extract consumer surplus but also to cover the entire market.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 471.

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Date of creation: 2003
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Handle: RePEc:bol:bodewp:471
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  1. Economides, Nicholas & Encaoua, David, 1996. "Special issue on network economics: Business conduct and market structure," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 669-671, October.
  2. Luca Lambertini & Raimondello Orsini, 2001. "Network Externalities and the Overprovision of Quality by a Monopolist," Southern Economic Journal, Southern Economic Association, vol. 67(4), pages 969-982, April.
  3. Giacomo Bonanno, 1987. "Location Choice, Product Proliferation and Entry Deterrence," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 37-45.
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