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Dynamic Oligopoly with Network Effects

  • Nicholas Economides
  • Matt Mitchell

We study the dynamics of an oligopoly market with network externalities. In contrast to earlier work, we consider a model where products are vertically differentiated and the number of firms is arbitrary. We show that the degree of network externalities has a one-to-one relationship with the number of firms that can survive. Moreover, we show that the market may overvalue high quality products, in the sense that the market equilibrium might lead to higher market shares for the high quality product than the planner would choose. We show that even in a world with linear demand, the market shares of three firms can cycle

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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 665.

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Date of creation: 2004
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Handle: RePEc:red:sed004:665
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Web page: http://www.EconomicDynamics.org/society.htm
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  1. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Entry (and exit) in a differentiated industry," CORE Discussion Papers RP 400, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Beggs, Alan W & Klemperer, Paul, 1992. "Multi-period Competition with Switching Costs," Econometrica, Econometric Society, vol. 60(3), pages 651-66, May.
  3. Michael Kurth, 1985. "Review," Public Choice, Springer, vol. 45(2), pages 223-224, January.
  4. Kenneth L. Judd, 1985. "Closed-Loop Equilibrium in a Multi-Stage Innovation Race," Discussion Papers 647, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Skrzypacz, Andrzej & Mitchell, Matthew F., 2005. "Network Externalities and Long-Run Market Shares," Research Papers 1879, Stanford University, Graduate School of Business.
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