Functional Degradation and Asymmetric Network Effects

16 Pages Posted: 12 Jun 2006

See all articles by Gergely Csorba

Gergely Csorba

Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS)

Jong-Hee Hahn

Yonsei University - Department of Economics

Abstract

In markets subject to network effects, firms often remove some functions of their original products and sell a functionally-downgraded version at a lower or zero price. This paper aims to provide a pure network effect based explanation of such a practice. Building a functional degradation model with asymmetric network effects, we investigate when and why firms have incentives to introduce a functionally-degraded good and discuss its welfare implication.

Suggested Citation

Csorba, Gergely and Hahn, Jong-Hee, Functional Degradation and Asymmetric Network Effects. Journal of Industrial Economics, Vol. 54, No. 2, pp. 253-268, June 2006. Available at SSRN: https://ssrn.com/abstract=906909 or http://dx.doi.org/10.1111/j.1467-6451.2006.00282.x

Gergely Csorba (Contact Author)

Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS)

Budaorsi u 45
Budapest, 1112
Hungary

Jong-Hee Hahn

Yonsei University - Department of Economics ( email )

50 Yonsei-Ro
Seoul, 120-749
Korea

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