EconStor >
Heinrich-Heine-Universität Düsseldorf >
Düsseldorf Institute for Competition Economics (DICE), University of Düsseldorf >
DICE Discussion Paper, Düsseldorf Institute for Competition Economics (DICE) >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/48679
  
Title:Bertrand competition in markets with network effects and switching costs PDF Logo
Authors:Suleymanova, Irina
Wey, Christian
Issue Date:2011
Series/Report no.:DICE discussion paper 30
Abstract:We analyze Bertrand duopoly competition in markets with network effects and consumer switching costs. Depending on the ratio of switching costs to network effects, our modelerates four different market patterns: monopolization and market sharing which can be either monotone or alternating. A critical mass effect, where one firm becomes the monopolist for sure only occurs for intermediate values of the ratio, whereas for large switching costs market sharing is the unique equilibrium. For large network effcts both monopoly and market sharing equilibria exist. Our welfare analysis reveals a fundamental conflict between maximization of consumer surplus and social welfare when network effects are large. We also analyze firms' incentives for compatibility and we examine how market outcomes are affected by the switching costs, market expansion, and cost asymmetries. Finally, in a dynamic extension of our model, we show how competition depends on agents' discount factors.
Subjects:Network Effects
Switching Costs
Bertrand Competition
JEL:L13
D43
L41
Document Type:Working Paper
Appears in Collections:DICE Discussion Paper, Düsseldorf Institute for Competition Economics (DICE)

Files in This Item:
File Description SizeFormat
665466420.pdf433.99 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/48679

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.