A Deposit-Refund Scheme for the Diffusion of Goods with Network Externalities

29 Pages Posted: 15 May 2015 Last revised: 15 Apr 2016

See all articles by Tatsuhiro Shichijo

Tatsuhiro Shichijo

Osaka Prefecture University - Graduate School of Economics

Takao Kusakawa

Kochi University of Technology - School of Economics and Management

Takehito Masuda

Osaka University - Institute of Social and Economic Research

Emiko Fukuda

National Defense Academy of Japan

Tatsuyoshi Saijo

Hitotsubashi University - Graduate School of Economics

Date Written: July 24, 2015

Abstract

Goods whose benefits increase as the number of users increases, such as fax machines and electric cars, are called "network products," and their related effects are called "network externalities." The diffusion of network products is hampered by private or incomplete information because players do not know each other's preferences for the network product, which makes it difficult for them to coordinate their actions.

To solve this problem, we propose a new scheme that introduces subscription deposits. We show that our scheme has a dominance-solvable equilibrium and, in the equilibrium outcome, network products rapidly become widespread. We use a laboratory experiment to show that the scheme increases social welfare. Moreover, this scheme works from the first round; i.e., players do not have to learn behavior through trial and error. Our results show that this scheme is useful for diffusing network products.

Keywords: Coordination failure, Network externalities

JEL Classification: C91, H23

Suggested Citation

Shichijo, Tatsuhiro and Kusakawa, Takao and Masuda, Takehito and Fukuda, Emiko and Saijo, Tatsuyoshi, A Deposit-Refund Scheme for the Diffusion of Goods with Network Externalities (July 24, 2015). Available at SSRN: https://ssrn.com/abstract=2603992 or http://dx.doi.org/10.2139/ssrn.2603992

Tatsuhiro Shichijo (Contact Author)

Osaka Prefecture University - Graduate School of Economics ( email )

Gakuen cho 1-1
Sakai, Osaka Prefecture 599-8531
Japan

Takao Kusakawa

Kochi University of Technology - School of Economics and Management ( email )

2-22 Eikokuji-cho
Kochi, 780-8515
Japan
+81-88-821-7141 (Phone)

Takehito Masuda

Osaka University - Institute of Social and Economic Research ( email )

6-1 Mihogaoka
Ibaraki, Osaka, 567-0047
Japan

HOME PAGE: http://https://sites.google.com/site/tmasudaexpecon/home

Emiko Fukuda

National Defense Academy of Japan ( email )

Hashirimizu 1-10-20
Yokosuka-shi, 239-8686
Japan

Tatsuyoshi Saijo

Hitotsubashi University - Graduate School of Economics ( email )

Naka 2-1
Kunitachi, Tokyo 186-8601
Japan

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