IDEAS home Printed from https://ideas.repec.org/p/ihs/ihsesp/120.html
   My bibliography  Save this paper

Lagged Network Externalities and Rationing in a Software Monopoly

Author

Listed:
  • Di Maria, Corrado

    (Department of Economics and Finance, Institute for Advanced Studies)

  • Köttl, Johannes

    (Department of Economics and Finance, Institute for Advanced Studies)

Abstract

The paper presents a model of a software monopolist who benefits from a lagged network externality arising from consumers' feedback through the so-called bug-fixing effect. That is, the software producer is able to correct errors in the software code detected by previous users, improving her products over time. Another feature of the model is that it responds to the short life cycle of software products, implying time-of-purchase depending utility functions, which are in contrast to the usual durable goods models. Both of these modifications are incorporated in a standard two-periods durable goods monopoly, analysing questions of introductory pricing and quantity rationing. The model suggests that neither of these two instruments is able to explain why we see so much free software in the markets.

Suggested Citation

  • Di Maria, Corrado & Köttl, Johannes, 2002. "Lagged Network Externalities and Rationing in a Software Monopoly," Economics Series 120, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihsesp:120
    as

    Download full text from publisher

    File URL: https://irihs.ihs.ac.at/id/eprint/1444
    File Function: First version, 2002
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Juan Ruiz, 2003. "Another Perspective on Planned obsolescence: is there really too much Innovation?," Industrial Organization 0302001, University Library of Munich, Germany.
    2. repec:bla:econom:v:58:y:1991:i:230:p:189-98 is not listed on IDEAS
    3. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
    4. Richard J. Gilbert & Paul Klemperer, 2000. "An Equilibrium Theory of Rationing," RAND Journal of Economics, The RAND Corporation, vol. 31(1), pages 1-21, Spring.
    5. Cabral, Luis M. B. & Salant, David J. & Woroch, Glenn A., 1999. "Monopoly pricing with network externalities," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 199-214, February.
    6. Ritzberger, Klaus, 2002. "Foundations of Non-Cooperative Game Theory," OUP Catalogue, Oxford University Press, number 9780199247868.
    7. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    8. Klaus Ritzberger & Werner Güth, 1998. "On durable goods monopolies and the Coase-Conjecture," Review of Economic Design, Springer;Society for Economic Design, vol. 3(3), pages 215-236.
    9. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
    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. Jianqiang Zhang & Weijun Zhong & Shue Mei, 2012. "Competitive effects of informative advertising in distribution channels," Marketing Letters, Springer, vol. 23(3), pages 561-584, September.
    2. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 15, pages 1073-1225, Elsevier.
    3. Kathryn E. Spier, 2003. "“Tied to the Mast”: Most-Favored-Nation Clauses in Settlement Contracts," The Journal of Legal Studies, University of Chicago Press, vol. 32(1), pages 91-120, January.
    4. Vincent Mak & Amnon Rapoport & Eyran J. Gisches & Jiaojie Han, 2014. "Purchasing Scarce Products Under Dynamic Pricing: An Experimental Investigation," Manufacturing & Service Operations Management, INFORMS, vol. 16(3), pages 425-438, July.
    5. John Boyce & Jeffrey Robert Church & Lucia Vojtassak, "undated". "Capacity Constraints in Durable Goods Monopoly: Coase and Hotelling," Working Papers 2012-07, Department of Economics, University of Calgary, revised 08 Aug 2012.
    6. Tian Xia & Richard Sexton, 2010. "Brand or Variety Choices and Periodic Sales as Substitute Instruments for Monopoly Price Discrimination," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(4), pages 333-349, June.
    7. Buehler, Stefan & Nicolas Eschenbaum, 2018. "Explaining Escalating Fines and Prices: The Curse of Positive Selection," Economics Working Paper Series 1807, University of St. Gallen, School of Economics and Political Science.
    8. Correia-da-Silva, João, 2021. "Optimal priority pricing by a durable goods monopolist," Games and Economic Behavior, Elsevier, vol. 129(C), pages 310-328.
    9. Long, Ngo Van & Soubeyran, Antoine, 2001. "Cost Manipulation Games in Oligopoly, with Costs of Manipulating," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 505-533, May.
    10. Suleyman Basak & Anna Pavlova, 2005. "Monopoly Power and the Firm’s Valuation: A Dynamic Analysis of Short versus Long-Term Policies," Studies in Economic Theory, in: Alessandro Citanna & John Donaldson & Herakles Polemarchakis & Paolo Siconolfi & Stephan E. Spear (ed.), Essays in Dynamic General Equilibrium Theory, pages 1-34, Springer.
    11. Tang, Edward Chi Ho & Leung, Charles Ka Yui & Ng, Joe Cho Yiu, 2018. "Does an Oligopolistic Primary Market Matter? The Case of an Asian Housing Market," MPRA Paper 93680, University Library of Munich, Germany.
    12. Sumit Sarkar, 2005. "Patent Licensing By A Standard Auction In The Presence Of Network Externality," Manchester School, University of Manchester, vol. 73(2), pages 228-245, March.
    13. Gerstle, Ari D. & Waldman, Michael, 2016. "Mergers in durable-goods industries: A re-examination of market power and welfare effects," Research in Economics, Elsevier, vol. 70(4), pages 677-692.
    14. Cabral, Luis M. B. & Salant, David J. & Woroch, Glenn A., 1999. "Monopoly pricing with network externalities," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 199-214, February.
    15. Dong, Junfeng & Wu, Desheng Dash, 2019. "Two-period pricing and quick response with strategic customers," International Journal of Production Economics, Elsevier, vol. 215(C), pages 165-173.
    16. Didier Laussel & Ngo V. Long & Joana Resende, 2020. "The curse of knowledge: having access to customer information can reduce monopoly profits," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 650-675, September.
    17. Shubha Ghosh, 2005. "Market Entry and the Proper Scope of Copyright," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 12(3), pages 347-359.
    18. Boone, J., 2002. "'Be Nice Unless it Pays to Fight' : A New Theory of Price Determination with Implications for Competition Policy," Discussion Paper 2002-23, Tilburg University, Center for Economic Research.
    19. Paulo Maçãs Nunes, 2015. "Pricing Strategy In The Context Of Durable Goods Monopoly With Discrete Demand," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 60(204), pages 61-74, January –.
    20. Giovanni Cespa, 2008. "Information Sales and Insider Trading with Long‐Lived Information," Journal of Finance, American Finance Association, vol. 63(2), pages 639-672, April.

    More about this item

    Keywords

    Software monopoly; Lagged network externality; Introductory pricing; Rationing;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

    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:ihs:ihsesp:120. 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: Doris Szoncsitz (email available below). General contact details of provider: https://edirc.repec.org/data/deihsat.html .

    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.