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

Author

Listed:
  • Didier Laussel

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

  • Ngo van Long
  • Joana Resende

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

Abstract

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.

Suggested Citation

  • Didier Laussel & Ngo van Long & Joana Resende, 2015. "Network effects, aftermarkets and the Coase conjecture: A dynamic Markovian approach," Post-Print hal-01457339, HAL.
  • 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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    Keywords

    Aftermarkets; Coase conjecture; Durable good; Network externalities;

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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