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Monopoly Pricing With Network Externalities

Author

Listed:
  • Luis Cabral

    (Universidade Nova de Lisboa and CEPR)

  • David Salant

    (GTE Laboratories Incorporated)

  • Glenn Woroch

    (GTE Laboratories)

Abstract

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.

Suggested Citation

  • Luis Cabral & David Salant & Glenn Woroch, 1994. "Monopoly Pricing With Network Externalities," Industrial Organization 9411003, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:9411003
    Note: 36?pp; postscript file, compressed; keywords: monopoly strategies, pricing
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    References listed on IDEAS

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