Network Markets and Consumers Coordination

46 Pages Posted: 20 Oct 2004

See all articles by Attila Ambrus

Attila Ambrus

Duke University - Department of Economics

Rosa Argenziano

affiliation not provided to SSRN

Date Written: September 2004

Abstract

This paper assumes that groups of consumers in network markets can coordinate their choices when it is in their best interest to do so, and when coordination does not require communication. It is shown that multiple asymmetric networks can coexist in equilibrium if consumers have heterogeneous reservation values. A monopolist provider might choose to operate multiple networks to price differentiate consumers on both sides of the market. Competing network providers might operate networks such that one of them targets high reservation value consumers on one side of the market, while the other targets high reservation value consumers on the other side. Firms can obtain positive profits in price competition. In these asymmetric equilibria product differentiation is endogenized by the network choices of consumers. Heterogeneity of consumers is necessary for the existence of this type of equilibrium.

Keywords: Coalitional agreements, coordination, network externalities, optimal pricing, platform competition, price discrimination, two-sided markets

JEL Classification: D43, D62, L11, L14

Suggested Citation

Ambrus, Attila and Argenziano, Rosa, Network Markets and Consumers Coordination (September 2004). Cowles Foundation Discussion Paper No. 1481. Available at SSRN: https://ssrn.com/abstract=607864

Attila Ambrus

Duke University - Department of Economics ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Rosa Argenziano (Contact Author)

affiliation not provided to SSRN

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