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Monopoly Pricing With Network Externalities

  • Luis Cabral

    (Universidade Nova de Lisboa and CEPR)

  • David Salant

    (GTE Laboratories Incorporated)

  • Glenn Woroch

    (GTE Laboratories)

How should a monopolist price a durable good or a new technology that is subject to network externalities? In particular, should the monopolist set a low "introductory price" to attract a "critical mass" of adopters? In this paper, we provide intuition as to when and why introductory pricing might occur in the presence of network externalities. Incomplete information about demand or asymmetric information about costs are necessary for introductory pricing to occur in equilibrium.

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Paper provided by EconWPA in its series Industrial Organization with number 9411003.

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Date of creation: 23 Nov 1994
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Handle: RePEc:wpa:wuwpio:9411003
Note: 36?pp; postscript file, compressed; keywords: monopoly strategies, pricing
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  17. Von Der Fehr, N.H.M. & Kuhn, K.U., 1992. "Coase vs. Pacman: Who Eats Whom in the Durable Goods Monopoly?," UFAE and IAE Working Papers 178.92, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  18. Bagnoli, Mark & Salant, Stephen W & Swierzbinski, Joseph E, 1989. "Durable-Goods Monopoly with Discrete Demand," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1459-78, December.
  19. Kai-Uwe Kuhn & A. Jorge Padilla, 1996. "Product Line Decisions and the Coase Conjecture," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 391-414, Summer.
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