We examine tippy network markets that accommodate price discrimination. The analysis shows that when a mild equilibrium refinement, the monotonicity criterion, is adopted, network competition may have a unique subgame-perfect equilibrium regarding the winner's identity; the prevailing brand may be fully determined by its product features. We bring out the concept of the dominant value margin, which is a metric of the effectiveness of divide-and-conquer strategies. The supplier with the larger dominant value margin may always sell to all customers in equilibrium. Such a market outcome is not necessarily socially efficient.
|Number of pages||23|
|Journal||International Economic Review|
|Publication status||Published - 2022 Nov|
Bibliographical noteFunding Information:
We thank Sofronis Clerides, Maciej Kotowski, Filippos Louis, Asha Sadanand, Nikolaos Tsakas, Xavier Vives, editor Rakesh Vohra, and two anonymous referees for helpful suggestions. We are also grateful to participants in the 2019 Royal Economic Society Annual Conference, the 2019 Econometric Society Latin American Workshop in Economic Theory and the 2019 North American Summer Meeting of the Econometric Society, as well as to seminar participants at the University of Cyprus. The article was supported by the Ministry of Education of the Republic of Korea, the National Research Foundation of Korea (NRF‐2020S1A5A2A01040865) and the University of Piraeus Research Center. Earlier versions of this article circulated under the titles “Dominant Value Margins and Networks,” “Network Externalities and Equilibrium Uniqueness,” and “Network Externalities, Price Discrimination, and Dominant Value Margins.”
© (2022) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics