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Network Externalities, Dominant Value Margins, And Equilibrium Uniqueness

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  • JAY PIL CHOI
  • CHRISTODOULOS STEFANADIS

Abstract

We examine tippy network markets that accommodate price discrimination. The analysis shows that when a mild equilibrium refinement, the monotonicity criterion, is adopted, network competition may have a unique subgame‐perfect equilibrium regarding the winner's identity; the prevailing brand may be fully determined by its product features. We bring out the concept of the dominant value margin, which is a metric of the effectiveness of divide‐and‐conquer strategies. The supplier with the larger dominant value margin may always sell to all customers in equilibrium. Such a market outcome is not necessarily socially efficient.

Suggested Citation

  • Jay Pil Choi & Christodoulos Stefanadis, 2022. "Network Externalities, Dominant Value Margins, And Equilibrium Uniqueness," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(4), pages 1805-1827, November.
    • Handle: RePEc:wly:iecrev:v:63:y:2022:i:4:p:1805-1827
    DOI: 10.1111/iere.12587
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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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