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Network Markets and Consumer Coordination

  • Attila Ambrus

    ()

    (Department of Economics,Harvard University, Cambridge)

  • Rosella Argenziano

    ()

    (Department of Economics, Yale University, New Haven)

This paper analyzes pricing decisions and competition in network markets, assuming that groups of consumers can coordinate their choices when it is in their interest, if coordination does not require communication. It is shown that multiple asymmetric networks can coexist in equilibrium. A monopolist might operate multiple ex ante identical networks to price differentiate. In Bertrand competition different firms might target high reservation value consumers on different sides of the market. Firms can obtain positive profits in price competition. Product differentiation in equilibrium is endogenized by consumers' network choices. Enough heterogeneity in reservation values is necessary for existence of these asymmetric equilibria.

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File URL: http://econ.core.hu/doc/dp/dp/mtdp0423.pdf
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Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0423.

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Length: 51 pages
Date of creation: Dec 2004
Date of revision:
Handle: RePEc:has:discpr:0423
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