NETWORK EXTERNALITIES, DOMINANT VALUE MARGINS, AND EQUILIBRIUM UNIQUENESS

Jay Pil Choi; Christodoulos Stefanadis

doi:10.1111/iere.12587

NETWORK EXTERNALITIES, DOMINANT VALUE MARGINS, AND EQUILIBRIUM UNIQUENESS

Jay Pil Choi, Christodoulos Stefanadis

Department of Economics

Research output: Contribution to journal › Article › peer-review

Abstract

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.

Original language	English
Pages (from-to)	1805-1827
Number of pages	23
Journal	International Economic Review
Volume	63
Issue number	4
DOIs	https://doi.org/10.1111/iere.12587
Publication status	Published - 2022 Nov

Bibliographical note

Funding 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.”

Publisher Copyright:
© (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

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10.1111/iere.12587

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title = "NETWORK EXTERNALITIES, DOMINANT VALUE MARGINS, AND EQUILIBRIUM UNIQUENESS",

abstract = "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.",

author = "Choi, {Jay Pil} and Christodoulos Stefanadis",

note = "Funding 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.” Publisher Copyright: {\textcopyright} (2022) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.",

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NETWORK EXTERNALITIES, DOMINANT VALUE MARGINS, AND EQUILIBRIUM UNIQUENESS

Abstract

Bibliographical note

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