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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 la Faculte d'administration à l'Universite 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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  1. Pigeard de Almeida Prado, Fernando & Belitsky, Vladimir & Ferreira, Alex Luiz, 2011. "Social interactions, product differentiation and discontinuity of demand," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 642-653.
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