IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Price screening with network effects and entry deterrence

Listed author(s):
  • Arun Sundararajan

This paper presents a model of price screening for goods with network effects, by a monopoly seller, and by an entry-deterring monopolist. These products are used in variable quantities by heterogeneous customers, the magnitude of network effects is influenced by gross consumption, rather than simply by user base, and the value derived from the network effects may be related to individual consumption and to customer type. Conditions under which fulfilled-expectations contracts exist and are unique are established. While network effects generally raise total prices in the optimal contracts, accompanying changes in consumption vary widely. Under the standard assumption of homogeneous network effects, there are no changes in consumption; in contrast, usage-dependent network effects increase the consumption of all types. Additionally, type-dependent network effects can cause downward distortions in consumption levels across a subset (and in special cases, all) types. The direction and extent of these distortions depend on the relative rates of variation in marginal intrinsic value and marginal network value with type. When network effects are homogeneous, the optimal entry-deterring contract is a flat fee that results in the efficient outcome. In contrast, when the network effects are usage-dependent, consumption increases only for a subset of lower types; however, when these network effects are strong enough, there are no changes in total surplus induced by the entry threat, but merely a transfer of surplus from the seller to its customers. The presence of network effects and of an entry threat also increase distributional efficiency by reducing the disparity in relative value captured by different customer types. Managerial, regulatory and policy implications of these results are discussed

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 576.

in new window

Date of creation: 11 Aug 2004
Handle: RePEc:ecm:nasm04:576
Contact details of provider: Phone: 1 212 998 3820
Fax: 1 212 995 4487
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ecm:nasm04:576. 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: (Christopher F. Baum)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.