On the role of consumer expectations in markets with network effects

Date: 2010

By: Suleymanova, Irina; Wey, Christian

URL: http://d.repec.org/n?u=RePEc:zbw:dicedp:13&r=net

We analyze the role of consumer expectations in a Hotelling model of price competition when products exhibit network effects. Expectations can be strong (stubborn), weak (price-sensitive) or partially stubborn (a mix of weak and strong). As a rule, the price-sensitivity of demand declines when expectations are more stubborn. An increase of stubbornness i) reduces competition, ii) increases (decreases) the parameter region with a unique duopoly equilibrium (multiple equilibria), iii) reduces the conflict between consumer and social preferences for de facto standardization, and iv) reduces the misalignment between consumer and social preferences for compatibility. —

Keywords: Network Effects,Expectations,Duopoly,Compatibility,Welfare

JEL: D43

One comment on “On the role of consumer expectations in markets with network effects

  1. 引用通告: Technology adoption in markets with network effects: Theory and experimental evidence | 行為 & 經濟實驗文獻注 (備忘) by 楊奕農

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