Network externalities in a dynamic monopoly |
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Authors: | Luca Lambertini Raimondello Orsini |
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Affiliation: | (1) Dipartimento di Scienze Economiche, Università degli Studi di Bologna, Strada Maggiore 45, 40125 Bologna, Italy;(2) ENCORE, Faculty of Economics and Econometrics, University of Amsterdam, Roetersstraat 11, WB 1018 Amsterdam, The Netherlands |
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Abstract: | We reconsider the role of network externalities in a dynamic spatial monopoly where the firm must invest in order to accumulate capacity, while consumers may have either linear or quadratic preferences. We (1) characterise saddle point equilibria, (2) prove that the extent of market coverage is increasing in the network effect and (3) unlike the existing static literature on the same problem, the monopolist may not make introductory price offers. Then, we briefly deal with the socially optimal solution, showing that, in general, a planner would serve more consumers than a profit-seeking monopolist. |
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Keywords: | Monopoly Network externality Critical mass Capital accumulation |
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