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Non-monotonic network effects and market entry

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  • Lundberg, Alexander

Abstract

The simple circular model of horizontal product differentiation, in which firms compete in price, is characterized by excessive firm entry in equilibrium. When non-monotonic network effects are present, this result no longer holds. If consumers differ in their optimal number of other consumers choosing their same good, entry in equilibrium can be insufficient.

Suggested Citation

  • Lundberg, Alexander, 2015. "Non-monotonic network effects and market entry," Economics Letters, Elsevier, vol. 137(C), pages 146-149.
    • Handle: RePEc:eee:ecolet:v:137:y:2015:i:c:p:146-149
    DOI: 10.1016/j.econlet.2015.10.039
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    References listed on IDEAS

    as
    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(2), pages 217-235.
    2. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    3. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
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    More about this item

    Keywords

    Network effects; Free entry; Fixed costs; Product differentiation; Non-monotonicity;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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