Dynamic monopoly pricing with network externalities

Bensaïd, Bernard; Lesne, Jean-Philippe

doi:10.1016/0167-7187(95)01000-9

Cited by 89 publications

(72 citation statements)

References 5 publications

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“…6 This is in contrast with the model of Bensaid and Lesne (1996), where externality effects are delayed.…”

contrasting

confidence: 41%

Durable Goods Monopoly with Network Externalities with Application to the PC Operating Systems Market

Economides

2000

SSRN Journal

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We analyze a model of multi-period monopoly in durable goods. Taking into consideration the special conditions of software markets, we assume that there are no used software markets and that manufacturers stop selling older software when they introduce a replacement model. We show that nominal as well as discounted (real) prices decrease over time but are above cost, thereby violating the Coase conjecture. In contrast, when "new" durable goods are introduced by the monopolist which are only partially compatible with "old" durable goods, prices may increase over time. This occurs when the intensity of network externalities arising from weak partial forward compatibility (influencing the demand of the old good from sales of the new one) is low compared to the intensity of network externalities arising from partial backward compatibility (influencing the demand of the new good from sales of the old one). A new product introduced by an entrant is successful only when it has strong externalities arising from forward compatibility. In this case, the entrant and the incumbent have opposite incentives regarding the degree of forward compatibility of the new product (that defines the extent of network externalities of the old product on consumers of the new one).

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“…6 This is in contrast with the model of Bensaid and Lesne (1996), where externality effects are delayed.…”

contrasting

confidence: 41%

Durable Goods Monopoly with Network Externalities with Application to the PC Operating Systems Market

Economides

2000

SSRN Journal

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“…In certain classes of example, they nd that Coase-conjecture price dynamics tend to predominate over penetration pricing: prices fall rather than rise over time, especially when there is complete information. Bensaid and Lesne (1996) nd however that strong network e ects remove the time-consistency Coase problem and cause optimal prices to increase over time. See also Mason (2000) and Choi (1994a).…”

Section: Single Monopoly Pricementioning

confidence: 99%

Coordination and Lock-In: Competition with Switching Costs and Network Effects

2006

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PRELIMINARY DRAFT: PLEASE SEND COMMENTSKEYWORDS: switching costs, network e ects, lock-in, network externalities, co-ordination, indirect network e ects JEL CLASSIFICATIONS: L130 market structure, rm strategy and market performance: oligopoly and other imperfect markets; monopolistic competition; contestable markets L150 information and product quality; standardization and compatibility L120 market structure, rm strategy and market performance: monopoly L140 transactional relationships: contracts and reputation: networks D430 market structure and pricing: oligopoly and other forms of market imperfection D420 market structure and pricing: monopoly. ACKNOWLEDGMENTS: We're grateful to many friends and colleagues for numerous helpful suggestions and comments over several substantial rewrites of this paper since our rst 1997 draft. Special thanks are due to Alan Beggs, Simon AbstractSwitching costs and network e ects bind customers to vendors if products are incompatible, locking customers or even markets in to early choices. Lock-in hinders customers from changing suppliers in response to (predictable or unpredictable) changes in e ciency, and gives vendors lucrative ex post market power|over the same buyer in the case of switching costs (or brand loyalty), or over others with network e ects.Firms compete ex ante for this ex post power, using penetration pricing, introductory o ers, and price wars. Such \competition for the market" or \life-cycle competition" can adequately replace ordinary compatible competition, and can even be ercer than compatible competition by weakening di erentiation. More often, however, incompatible competition not only involves direct e ciency losses but also softens competition and magni es incumbency advantages. With network e ects, established rms have little incentive to o er better deals when buyers' and complementors' expectations hinge on non-e ciency factors (especially history such as past market shares), and although competition between incompatible networks is initially unstable and sensitive to competitive o ers and random events, it later \tips" to monopoly, after which entry is hard, often even too hard given incompatibility. And while switching costs can encourage small-scale entry, they discourage sellers from raiding one another's existing customers, and so also discourage more aggressive entry.Because of these competitive e ects, even ine cient incompatible competition is often more pro table than compatible competition, especially for dominant rms with installed-base or expectational advantages. Thus rms probably seek incompatibility too often. We therefore favor thoughtfully pro-compatibility public policy.

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“…Research by Khalfallah (2013) discussed about Britain power industry and pointed out that he has found such cooperation behaviors while doing the transaction practice. The secret contracting purchase for electricity caused by the cooperation leads the noncompetitive monopoly situation in Britain power supply section (Bensaid & Lesne, 1996). At last, due to the different ways of power generation and units' consumption, the marginal cost of power enterprises is also different.…”

Section: Literature Reviewmentioning

confidence: 99%

The gains and losses of collusion: An empirical research on the market behaviors of China’s power enterprises

Gao

Zhang

et al. 2015

JIEM

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Abstract:Purpose: Collusion is a common behavior of oligarch enterprises aiming to get an advantage in market competition. The purpose of the research is to explore positive or negative effects from the electricity generation manufacturers' collusion through statistical analysis approach. To be exact, these effects are discovered both in market economy at a macro-economic level and in enterprise behaviors at a micro-economic level.Design/methodology/approach: This research designs a model as an extension of Porter's model (Green & Porter, 1984). In this model FIML is applied. Taking price bidding project launched in China's power industry as an example, this paper conducts an empirical research on its relevant price data collected from subordinate power plants of China's five power generation groups in the pilots. Findings:It is found in this paper that power generation enterprises are facing collusion issues in the market. To be exact, it is such a situation in which non-cooperative competition and collusion alternate. Under the competition, market is relatively steady, thus forming a lower network price. It is helpful to the development of the whole industry. However, once Cartel is formed, the price will rise and clash with power enterprises and transmission-distribution companies concerning the interests conflicts. At the same time, a higher power price will form in the market, making consumers suffer losses. All of these are bad for industry development.-943-Journal of Industrial Engineering and Management -http://dx.doi. org/10.3926/jiem.1515 Not only the collusion of power enterprises affects power price but also the market power that caused by long-time Cartel will reduce the market entrant in electricity generation. Market resources are centralized in the hands of Cartel, causing a low effective competition in the market, which has passive effects on users. Implications:The empirical research also indicates that collusion undoubtedly benefits the power enterprises that involved. As a cooperation pattern, collusion can lead to the synergy between relevant companies. However, collusion harms the benefits of other market entities.During the process of enterprises creating common interests cooperatively, collusion may bring harm to the outside industry.Originality/value: Using empirical research method, the paper takes China's power industry as an example to show the gains and losses of collusion from two aspects, namely market economy and strategic management.

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Dynamic monopoly pricing with network externalities

Cited by 89 publications

References 5 publications

Durable Goods Monopoly with Network Externalities with Application to the PC Operating Systems Market

Durable Goods Monopoly with Network Externalities with Application to the PC Operating Systems Market

Coordination and Lock-In: Competition with Switching Costs and Network Effects

The gains and losses of collusion: An empirical research on the market behaviors of China’s power enterprises

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