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Screening Contracts in the Presence of Positive Network Effects

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  • Gergely Csorba

    (Central European University, Economics Department)

Abstract

Based on the critical assumption of strategic complementarity, this paper builds a general model to describe and solve the screening problem faced by the monopolist seller of a network good. By applying monotone comparative static tools, we demonstrate that the joint presence of asymmetric information and positive network effects leads to a strict downward distortion for all consumers in the quantities provided. We also show that the equilibrium allocation is an increasing function of the intensity of network effects, and that a discriminating monopoly may supply large quantities for all consumers than a competitive industry.

Suggested Citation

  • Gergely Csorba, 2004. "Screening Contracts in the Presence of Positive Network Effects," CERS-IE WORKING PAPERS 0414, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:discpr:0414
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Vincent Meisner & Pascal Pillath, 2024. "Monetizing digital content with network effects: A mechanism-design approach," Papers 2408.15196, arXiv.org, revised Oct 2024.
    2. Ostrizek, Franz & Sartori, Elia, 2023. "Screening while controlling an externality," Games and Economic Behavior, Elsevier, vol. 139(C), pages 26-55.
    3. Vincent Meisner & Pascal Pillath, 2024. "Monetizing digital content with network effects: A mechanism-design approach," Berlin School of Economics Discussion Papers 0049, Berlin School of Economics.
    4. Reisinger, Markus, 2014. "Two-part tariff competition between two-sided platforms," European Economic Review, Elsevier, vol. 68(C), pages 168-180.
    5. Veiga, André, 2018. "A note on how to sell a network good," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 114-126.
    6. Yuichiro Kamada & Aniko Öry, 2020. "Contracting with Word-of-Mouth Management," Management Science, INFORMS, vol. 66(11), pages 5094-5107, November.
    7. Meng, Dawen & Tian, Guoqiang, 2008. "Nonlinear Pricing with Network Externalities and Countervailing Incentives," MPRA Paper 41212, University Library of Munich, Germany, revised Aug 2008.
    8. Böhme Enrico, 2016. "Second-Degree Price Discrimination on Two-Sided Markets," Review of Network Economics, De Gruyter, vol. 15(2), pages 91-115, June.
    9. Jadbabaie, Ali & Kakhbod, Ali, 2019. "Optimal contracting in networks," Journal of Economic Theory, Elsevier, vol. 183(C), pages 1094-1153.
    10. Yang Zhang & Ying-Ju Chen, 2020. "Optimal Nonlinear Pricing in Social Networks Under Asymmetric Network Information," Operations Research, INFORMS, vol. 68(3), pages 818-833, May.
    11. Abraham, Martin, 2009. "Why reputation is not always beneficial: Tolerance and opportunism in business networks," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(6), pages 908-915, December.
    12. Meng, Dawen & Tian, Guoqiang, 2013. "Entry-Deterring Nonlinear Pricing with Bounded Rationality," MPRA Paper 57935, University Library of Munich, Germany, revised May 2014.

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    More about this item

    Keywords

    network effects; strategic complementarities; contracting with externalities; second-degree discrimination; monotone comparative statics;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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