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A Note on Quality Choice, Monopoly, and Network Externality

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  • Tsuyoshi Toshimitsu

Abstract

Introducing network externalities into a model of vertically differentiated products, Lambertini and Orsini (2001, 2003) analyze the implications of a monopolist’s quality choice for social optimum. Moreover, they examine how the network externality affects quality, quantity, price, and social surplus. In this note, by looking at the nature of cost functions and the degree of network externalities, we reconsider their results, at least some of which depend upon the specificity of the cost functions. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • Tsuyoshi Toshimitsu, 2007. "A Note on Quality Choice, Monopoly, and Network Externality," Journal of Industry, Competition and Trade, Springer, vol. 7(2), pages 131-142, June.
    • Handle: RePEc:kap:jincot:v:7:y:2007:i:2:p:131-142
    DOI: 10.1007/s10842-006-0003-5
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    References listed on IDEAS

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    1. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    2. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    3. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    4. Shy,Oz, 2001. "The Economics of Network Industries," Cambridge Books, Cambridge University Press, number 9780521805001.
    5. Luca Lambertini & Raimondello Orsini, 2001. "Network Externalities and the Overprovision of Quality by a Monopolist," Southern Economic Journal, John Wiley & Sons, vol. 67(4), pages 969-982, April.
    6. Heli Koski & Tobias Kretschmer, 2004. "Survey on Competing in Network Industries: Firm Strategies, Market Outcomes, and Policy Implications," Journal of Industry, Competition and Trade, Springer, vol. 4(1), pages 5-31, March.
    7. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
    8. repec:bla:econom:v:43:y:1976:i:17:p:127-37 is not listed on IDEAS
    9. David Sappington, 2005. "Regulating Service Quality: A Survey," Journal of Regulatory Economics, Springer, vol. 27(2), pages 123-154, November.
    10. L. Lambertini & R. Orsini, 1998. "Monopoly, Quality, and Network Externalities," Working Papers 334, Dipartimento Scienze Economiche, Universita' di Bologna.
    11. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
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    Cited by:

    1. Asano, Takao & Shibata, Akihisa, 2011. "Optimal pricing and quality choice of a monopolist under Knightian uncertainty," International Journal of Industrial Organization, Elsevier, vol. 29(6), pages 746-754.

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    More about this item

    Keywords

    network externality; quality choice; vertically differentiated product; monopoly; D42; L12; L15;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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