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Stubbornness is unprofitable: On the role of consumer expectations in a monopoly network goods market

Author

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  • Tsuyoshi Toshimitsu

    (School of Economics, Kwansei Gakuin University)

Abstract

We consider the formation (or timing) of consumer expectations regarding network size. Using a simple monopoly model with network externalities, we examine how the formation of consumer expectations, i.e., either stubborn or flexible expectations, affects the fulfilled expected monopoly equilibrium. We demonstrate that an increase in stubbornness reduces both output and consumer surplus. Furthermore, it is unprofitable for the monopolist that consumers have stubborn expectations.

Suggested Citation

  • Tsuyoshi Toshimitsu, 2016. "Stubbornness is unprofitable: On the role of consumer expectations in a monopoly network goods market," Discussion Paper Series 152, School of Economics, Kwansei Gakuin University, revised Dec 2016.
    • Handle: RePEc:kgu:wpaper:152
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    File URL: http://192.218.163.163/RePEc/pdf/kgdp152.pdf
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    References listed on IDEAS

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    1. Irina Suleymanova & Christian Wey, 2012. "On the role of consumer expectations in markets with network effects," Journal of Economics, Springer, vol. 105(2), pages 101-127, March.
    2. Economides, Nicholas, 1996. "Network externalities, complementarities, and invitations to enter," European Journal of Political Economy, Elsevier, vol. 12(2), pages 211-233, September.
    3. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
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    Cited by:

    1. Tsuyoshi Toshimitsu, 2017. "On consumer expectations in a network goods market: The monopoly case," Economics Bulletin, AccessEcon, vol. 37(1), pages 488-493.

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    Keywords

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    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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