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Network effects, aftermarkets and the Coase conjecture: A dynamic Markovian approach

Listed author(s):
  • Didier Laussel

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille 2 - Université Paul Cézanne - Aix-Marseille 3 - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Ngo Van Long
  • Joana Resende

    (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain, CETE - University of Porto)

This paper investigates the expansion of the network of a monopolist firm that produces a durable good and is also involved in the corresponding aftermarket. We characterize the Markov Perfect Equilibrium of the continuous time dynamic game played by the monopolist and the forward-looking consumers, under the assumption that consumers benefit from the subsequent expansion of the network. The paper contributes to the theoretical discussion on the validity of the Coase conjecture, analyzing whether Coase's prediction that the monopolist serves the market in a “twinkling of an eye” remains valid in our setup. We conclude that the equilibrium network development may actually be gradual, contradicting Coase's conjecture. We find that a necessary condition for such a result is the existence of aftermarket network effects that accrue (at least partly) to the monopolist firm.

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Paper provided by HAL in its series Post-Print with number hal-01457339.

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Date of creation: Jul 2015
Publication status: Published in International Journal of Industrial Organization, Elsevier, 2015, 41 (C), pp.84--96
Handle: RePEc:hal:journl:hal-01457339
Note: View the original document on HAL open archive server: https://hal-amu.archives-ouvertes.fr/hal-01457339
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