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Screening Contracts in the Presence of Positive Network Effects

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  • Gergely Csorba

Abstract

Based on the critical assumption of strategic complementarity, this paper builds a general model to describe and solve the screening problem faced by the monopolist seller of a network good. By applying monotone comparative static tools, we demonstrate that the joint presence of asymmetric information and positive network effects leads to a strict downward distortion for all consumers in the quantities provided. We also show that the equilibrium allocation is an increasing function of the intensity of network effects, and that a discriminating monopoly may supply larger quantities for all consumers than a competitive industry

Suggested Citation

  • Gergely Csorba, 2004. "Screening Contracts in the Presence of Positive Network Effects," Econometric Society 2004 North American Summer Meetings 336, Econometric Society.
  • Handle: RePEc:ecm:nasm04:336
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Yuichiro Kamada & Aniko Ory, 2016. "Contracting with Word-of-Mouth Management," Cowles Foundation Discussion Papers 2048R, Cowles Foundation for Research in Economics, Yale University, revised Sep 2017.
    2. Meng, Dawen & Tian, Guoqiang, 2008. "Nonlinear Pricing with Network Externalities and Countervailing Incentives," MPRA Paper 41212, University Library of Munich, Germany, revised Aug 2008.
    3. Abraham, Martin, 2009. "Why reputation is not always beneficial: Tolerance and opportunism in business networks," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(6), pages 908-915, December.
    4. Yuichiro Kamada & Aniko Ory, 2016. "Contracting with Word-of-Mouth Management," Cowles Foundation Discussion Papers 2048, Cowles Foundation for Research in Economics, Yale University.
    5. Böhme Enrico, 2016. "Second-Degree Price Discrimination on Two-Sided Markets," Review of Network Economics, De Gruyter, vol. 15(2), pages 91-115, June.
    6. Meng, Dawen & Tian, Guoqiang, 2013. "Entry-Deterring Nonlinear Pricing with Bounded Rationality," MPRA Paper 57935, University Library of Munich, Germany, revised May 2014.
    7. Reisinger, Markus, 2014. "Two-part tariff competition between two-sided platforms," European Economic Review, Elsevier, vol. 68(C), pages 168-180.

    More about this item

    Keywords

    network effects; strategic complementarities; contracting with externalities; second-degree discrimination; monotone comparative statics;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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