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A note on how to sell a network good

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  • Veiga, André

Abstract

I consider a monopolist in an industry with positive network externalities. The firm can screen heterogeneous consumers by offering multiple products. Screening captures a greater share of consumer surplus but also segregates consumers into multiple products, thereby lowering the total network surplus. Thus, screening is socially inefficient. I show screening is never profit maximizing: the monopolist offers a single product, but at an excessive price. Thus, excessive consumer segregation is unlikely to occur in industries such as online multiplayer games, financial exchanges and messaging software.

Suggested Citation

  • Veiga, André, 2018. "A note on how to sell a network good," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 114-126.
    • Handle: RePEc:eee:indorg:v:59:y:2018:i:c:p:114-126
    DOI: 10.1016/j.ijindorg.2017.12.009
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    Cited by:

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    2. Matteo Alvisi & Emanuela Carbonara, 2020. "Cocktails done right: price competition and welfare when substitutes become complements," Journal of Economics, Springer, vol. 131(1), pages 1-38, September.

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    More about this item

    Keywords

    Network externalities; Peer effects; Mechanism design; Group design; Screening;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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