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Network Effects, Aftermarkets and the Coase Conjecture : A Dynamic Markovian Approach

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  • Didier LAUSSEL
  • Ngo Van LONG
  • Joana RESENDE

Abstract

This paper analyses the dynamic problem faced by a monopolist firm that produces a durable good (in the primary market) and also participates in the market for complementary goods and services (the aftermarket). Considering the possibility of network effects in both markets, we investigate the Markov Perfect Equilibrium of the dynamic game played by the monopolist and the forward-looking consumers. We characterize the evolution of the monopolist's equilibrium network and the equilibrium price trajectories. We show that the Coase Conjecture remains valid if there are only primary network effects, while it fails when aftermarket network effects are present. We also fi nd that the properties of the Markov Perfect Equilibrium vary drastically with the intensity of aftermarket network effects.

Suggested Citation

  • Didier LAUSSEL & Ngo Van LONG & Joana RESENDE, 2014. "Network Effects, Aftermarkets and the Coase Conjecture : A Dynamic Markovian Approach," Cahiers de recherche 06-2014, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  • Handle: RePEc:mtl:montec:06-2014
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    References listed on IDEAS

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    Cited by:

    1. Ngo Long, 2015. "Dynamic Games Between Firms and Infinitely Lived Consumers: A Review of the Literature," Dynamic Games and Applications, Springer, vol. 5(4), pages 467-492, December.

    More about this item

    Keywords

    durable good; network externalities; aftermarkets; Coase Conjecture;

    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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