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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. JEL classification: D42 Externalités de réseaux, déplacements discrets de la demande, et tarification en deçà du coût marginal. L’introduction d’un nouveau produit engendre souvent un déplacement massif (discret) de la demande vers le nouveau produit. Cette étude montre que si un tel déplacement de la demande est accompagné d’externalités de réseaux, il peut s’ensuivre une tarification en deçà du coût marginal, où le vendeur fixe son prix en dessous du coût marginal. Ce résultat jette une lumière nouvelle sur les problèmes de dumping et de protection dans le monde réel.

Suggested Citation

  • Makoto Yano & Fumio Dei, 2006. "Network externalities, discrete demand shifts, and submarginal‐cost pricing," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(2), pages 455-476, May.
    • Handle: RePEc:wly:canjec: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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