Working Paper: CEPR ID: DP4574
Authors: Krina Griva; Nikolaos Vettas
Abstract: We examine price competition under product-specific network effects, in a duopoly where the products are differentiated horizontally and vertically. When consumers' expectations are not affected by prices, firms may share the market equally, or one firm (possibly the low-quality one) may capture the entire market. When product qualities are different, we may also have interior asymmetric equilibria. With expectations affected by prices, firms' competition becomes more intense and the high quality firm captures a larger market share.
Keywords: network effects; price competition; product differentiation; product variety; quality
JEL Codes: D43; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| network effects (D85) | market behavior (D40) |
| network effects (D85) | market shares (L17) |
| network effects (D85) | pricing strategies (D49) |
| weak network effects (D85) | symmetric equilibria (D50) |
| strong network effects (D85) | asymmetric equilibria (D51) |
| price competition (D41) | consumer expectations (D84) |
| consumer expectations (D84) | market outcomes (P42) |
| network effects (D85) | competition intensity (L13) |
| competition intensity (L13) | equilibrium prices (D41) |
| competition intensity (L13) | profits (L21) |
| vertical differentiation (L22) | market share of high-quality firm (L15) |
| quality difference not substantial relative to network effect (L15) | market share of low-quality firm (L15) |