Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/197725
Authors: 
Aoyagi, Masaki
Year of Publication: 
2017
Series/Report no.: 
ISER Discussion Paper No. 993
Abstract: 
Two firms engage in price competition to attract buyers located on a network. The value of the good of either firm to any buyer depends on the number of neighbors on the network who adopt the same good. When the size of externalities increases linearly with the number of adoptions, we identify the set of price strategies that are consistent with an equilibrium in which one of the firms monopolizes the market. The set includes marginal cost pricing as well as bipartition pricing, which offers discounts to some buyers and charges markups to others. We show that marginal cost pricing fails to be an equilibrium under non-linear externalities but identify conditions for an equilibrium with bipartition pricing to be robust against perturbations in the externalities from linearity. The idea of bipartition pricing is then applied to the analysis of platform competition in a two-sided market under local and approximately linear externalities.
Subjects: 
graphs
divide and conquer
price discrimination
two-sided markets
partition
JEL: 
C72
D82
Document Type: 
Working Paper

Files in This Item:
File
Size
418.93 kB





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