IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2312.02865.html
   My bibliography  Save this paper

Two is enough: a flip on Bertrand through positive network effects

Author

Listed:
  • Renato Soeiro
  • Alberto Pinto

Abstract

We discuss price competition when positive network effects are the only other factor in consumption choices. We show that partitioning consumers into two groups creates a rich enough interaction structure to induce negative marginal demand and produce pure price equilibria where both firms profit. The crucial condition is one group has centripetal influence while the other has centrifugal influence. The result is contrary to when positive network effects depend on a single aggregate variable and challenges the prevalent assumption that demand must be micro-founded on a distribution of consumer characteristics with specific properties, highlighting the importance of interaction structures in shaping market outcomes.

Suggested Citation

  • Renato Soeiro & Alberto Pinto, 2023. "Two is enough: a flip on Bertrand through positive network effects," Papers 2312.02865, arXiv.org.
    • Handle: RePEc:arx:papers:2312.02865
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2312.02865
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
    2. Karni, Edi & Levin, Dan, 1994. "Social Attributes and Strategic Equilibrium: A Restaurant Pricing Game," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 822-840, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Renato Soeiro & Alberto Pinto, 2021. "Group network effects in price competition," Papers 2110.05891, arXiv.org.
    2. Allen, Beth & Thisse, Jacques-Francois, 1992. "Price Equilibria in Pure Strategies for Homogeneous Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 63-81, Spring.
    3. Pereira, Pedro & Ribeiro, Tiago, 2011. "The impact on broadband access to the Internet of the dual ownership of telephone and cable networks," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 283-293, March.
    4. Matthew G. Nagler, 2016. "Equilibrium with Consumer Adjustment to Choice," Working Papers 10, City University of New York Graduate Center, Ph.D. Program in Economics.
    5. K Kogan & U Spiegel, 2006. "Dynamic zigzag pricing of resalable goods with no depreciation and intergroup externalities," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 57(11), pages 1353-1365, November.
    6. Moraga-González, José L. & Sándor, Zsolt & Wildenbeest, Matthijs R., 2014. "Prices, Product Differentiation, And Heterogeneous Search Costs," IESE Research Papers D/1097, IESE Business School.
    7. Leandro Arozamena & Estelle Cantillon, 2004. "Investment Incentives in Procurement Auctions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(1), pages 1-18.
    8. Aamir Rafique Hashmi & Johannes Van Biesebroeck, 2016. "The Relationship between Market Structure and Innovation in Industry Equilibrium: A Case Study of the Global Automobile Industry," The Review of Economics and Statistics, MIT Press, vol. 98(1), pages 192-208, March.
    9. Eduardo M. Azevedo & Daniel Gottlieb, 2017. "Perfect Competition in Markets With Adverse Selection," Econometrica, Econometric Society, vol. 85, pages 67-105, January.
    10. Light, Bar & Weintraub, Gabriel, 2018. "Mean Field Equilibrium: Uniqueness, Existence, and Comparative Statics," Research Papers 3731, Stanford University, Graduate School of Business.
    11. Alexandre de Corniere, 2013. "Search Advertising," Economics Series Working Papers 649, University of Oxford, Department of Economics.
    12. C. Lanier Benkard & Przemyslaw Jeziorski & Gabriel Y. Weintraub, 2013. "Oblivious Equilibrium for Concentrated Industries," NBER Working Papers 19307, National Bureau of Economic Research, Inc.
    13. Daisuke Oyama & Yasuhiro Sato & Takatoshi Tabuchi & Jacques-François Thisse, 2009. "On the impact of trade on industrial structures: The role of entry cost heterogeneity," Working Papers halshs-00566786, HAL.
    14. Soeiro, Renato & Adrego Pinto, Alberto, 2019. "Social power as a solution to the Bertrand Paradox," MPRA Paper 94271, University Library of Munich, Germany.
    15. Jun Honda, 2015. "Games with the Total Bandwagon Property," Department of Economics Working Papers wuwp197, Vienna University of Economics and Business, Department of Economics.
    16. Gans, Joshua S. & Hill, Robert J., 1997. "Measuring product diversity," Economics Letters, Elsevier, vol. 55(1), pages 145-150, August.
    17. Fatica, Serena, 2009. "Taxation and the quality of institutions: asymmetric effects on FDI," MPRA Paper 24179, University Library of Munich, Germany, revised Jun 2010.
    18. Schweizer, Nikolaus & Szech, Nora, 2015. "A quantitative version of Myerson regularity," Working Paper Series in Economics 76, Karlsruhe Institute of Technology (KIT), Department of Economics and Management.
    19. Ulrich Doraszelski & Kenneth L. Judd, 2012. "Avoiding the curse of dimensionality in dynamic stochastic games," Quantitative Economics, Econometric Society, vol. 3(1), pages 53-93, March.
    20. A. Kerem Cosar & Paul L. E. Grieco & Felix Tintelnot, 2015. "Borders, Geography, and Oligopoly: Evidence from the Wind Turbine Industry," The Review of Economics and Statistics, MIT Press, vol. 97(3), pages 623-637, July.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2312.02865. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.