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Title:On the role of consumer expectations in markets with network effects PDF Logo
Authors:Suleymanova, Irina
Wey, Christian
Issue Date:2010
Series/Report no.:DICE discussion paper 13
Abstract: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.
Subjects:Network Effects
Expectations
Duopoly
Compatibility
Welfare
JEL:D43
D84
L13
ISBN:978-3-86304-012-3
Document Type:Working Paper
Appears in Collections:DICE Discussion Paper, Düsseldorf Institute for Competition Economics (DICE)

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