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Network externalities, discrete demand shifts, and submarginal-cost pricing

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  • Makoto Yano
  • Fumio Dei

Abstract

The introduction of a new product often causes a massive (discrete) demand shift to the new product. This study demonstrates that if a large-scale demand shift to a new product is accompanied by network externalities, it may result in `submarginal-cost pricing,' by which the seller sets its price below the marginal cost. This finding casts new light on dumping and safeguard issues in the real world.

Suggested Citation

  • Makoto Yano & Fumio Dei, 2006. "Network externalities, discrete demand shifts, and submarginal-cost pricing," Canadian Journal of Economics, Canadian Economics Association, vol. 39(2), pages 455-476, May.
    • Handle: RePEc:cje:issued:v:39:y:2006:i:2:p:455-476
    DOI: 10.1111/j.0008-4085.2006.00355.x
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    References listed on IDEAS

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    Cited by:

    1. Corrado Benassi & Marcella Scrimitore, 2017. "Income Distribution in Network Markets," Journal of Industry, Competition and Trade, Springer, vol. 17(3), pages 251-271, September.
    2. Jean J. Gabszewicz & Filomena Garcia, 2007. "Intrinsic quality improvements and network externalities," International Journal of Economic Theory, The International Society for Economic Theory, vol. 3(4), pages 261-278, December.
    3. Toru Kikuchi, 2007. "Network Externalities And Comparative Advantage," Bulletin of Economic Research, Wiley Blackwell, vol. 59(4), pages 327-337, October.
    4. Makoto Yano, 2009. "The Foundation Of Market Quality Economics," The Japanese Economic Review, Japanese Economic Association, vol. 60(1), pages 1-32, March.
    5. Kenji Fujiwara, 2011. "Network externalities, transport costs, and tariffs," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 20(6), pages 729-739, October.
    6. Jorge Ferrando & Jean J. Gabszewicz & Didier Laussel & Nathalie Sonnac, 2008. "Intermarket network externalities and competition: An application to the media industry," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(3), pages 357-379, September.

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    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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