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Price and quality decisions under network effects

  • Noemí Navarro

    ()

    (Département d'économique and GRÉDI, Université de Sherbrooke)

I analyze monopoly pricing and quality decisions under network effects. High quality premium and low quality punishment are found to depend on how the impact of marginal costs on quality relates to the intensity of the network effect and the optimism of the producer about final demand. More precisely, marginal costs have to be low enough (but not too low) with respect to the intensity of the network effects and/or the optimism about final demand so that higher prices reflect higher quality. A similar conclusion can be drawn about incentives for quality provision, whenever quality is considered endogenous together with price.

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File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-1201.pdf
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Paper provided by Departement d'Economique de l'École de gestion à l'Université de Sherbrooke in its series Cahiers de recherche with number 12-01.

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Length: 22 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:shr:wpaper:12-01
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  14. Noemí Navarro, 2008. "Quality provision under referral consumption," Working Papers 2008-12, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center.
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  29. Argenziano, Rossella, 2007. "Differentiated Networks: Equilibrium and Efficiency," Economics Discussion Papers 2646, University of Essex, Department of Economics.
  30. Karni, Edi & Levin, Dan, 1994. "Social Attributes and Strategic Equilibrium: A Restaurant Pricing Game," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 822-40, August.
  31. Bensaid, Bernard & Lesne, Jean-Philippe, 1996. "Dynamic monopoly pricing with network externalities," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 837-855, October.
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