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Capacity Expansion in Markets with Intertemporal Consumption Externalities

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  • Hiroshi Kitamura

    () (Graduate School of Economics, Osaka University)

Abstract

This paper analyzes market capacity expansion in the presence of intertemporal consumption externalities such as consumer learning, networks, or bandwagon effects. The externality leads to an endogenous shift of market demand that responds to past market capacity. Whereas market capacity grows in waves, its magnitude depends on the degree of market concentration. The competitive environment contributes to S-shaped time patterns of market capacity expansion that is slow from the social viewpoint. On the other hand, using an introductory price, a monopolist plans an initially larger, but eventually smaller, amount of market cultivation than a competitive market capacity expansion.

Suggested Citation

  • Hiroshi Kitamura, 2007. "Capacity Expansion in Markets with Intertemporal Consumption Externalities," Discussion Papers in Economics and Business 07-11, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  • Handle: RePEc:osk:wpaper:0711
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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0711.pdf
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    References listed on IDEAS

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    1. Carl Shapiro, 1983. "Optimal Pricing of Experience Goods," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 497-507, Autumn.
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    More about this item

    Keywords

    Intertemporal consumption externalities; S-shaped diffusion; Market structure; Introductory price.;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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