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Dynamic Oligopoly with Network Effects

Author

Listed:
  • Nicholas Economides
  • Matt Mitchell

Abstract

We study the dynamics of an oligopoly market with network externalities. In contrast to earlier work, we consider a model where products are vertically differentiated and the number of firms is arbitrary. We show that the degree of network externalities has a one-to-one relationship with the number of firms that can survive. Moreover, we show that the market may overvalue high quality products, in the sense that the market equilibrium might lead to higher market shares for the high quality product than the planner would choose. We show that even in a world with linear demand, the market shares of three firms can cycle

Suggested Citation

  • Nicholas Economides & Matt Mitchell, 2004. "Dynamic Oligopoly with Network Effects," 2004 Meeting Papers 665, Society for Economic Dynamics.
    • Handle: RePEc:red:sed004:665
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    Cited by:

    1. Dementiev, V. & Evsukov, S. & Ustyuzhanina, E., 2020. "The importance of a strategic approach to pricing in markets for network goods," Journal of the New Economic Association, New Economic Association, vol. 46(2), pages 57-71.

    More about this item

    Keywords

    Network Externalities; Industry Dynamics;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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