Capacity Expansion in Markets with Intertemporal Consumption Externalities
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.
|Date of creation:||Apr 2007|
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