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Heterogeneous Consumer Expectations and Monopoly Pricing for Durables with Network Externalities

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  • Hattori, Keisuke
  • Zennyo, Yusuke

Abstract

This paper studies the optimal pricing and diffusion of durable goods that exhibit positive network externalities, when consumers are heterogeneous in their expectations about future network sizes. We consider the existence of naive consumers, as well as of sophisticated consumers having fulfilled expectations. We find that the firm charges the sequential-diffusion pricing that makes sophisticated consumers function as early adopters, unless consumers quickly become bored with using the goods and/or unless the firm heavily discounts its future profits. We also compare the profitability of three possible pricing strategies with different commitment powers: fixed, responsive, and pre-announced pricing.

Suggested Citation

  • Hattori, Keisuke & Zennyo, Yusuke, 2018. "Heterogeneous Consumer Expectations and Monopoly Pricing for Durables with Network Externalities," MPRA Paper 89893, University Library of Munich, Germany, revised 08 Nov 2018.
  • Handle: RePEc:pra:mprapa:89893
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    References listed on IDEAS

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    1. Keisuke Hattori and Yusuke Zennyo (2018). Heterogeneous Consumer Expectations and Monopoly Pricing for Durables with Network Externalities.
      by ireadeconpapers in I Read Econ Papers on 2020-04-13 20:16:53

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    More about this item

    Keywords

    durable goods; network externalities; diffusion process; consumer naivete; dynamic pricing;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • 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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