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Pricing Network Effects

Fainmesser, Itay P and Galeotti, Andrea (2016) 'Pricing Network Effects.' The Review of Economic Studies, 83 (1). pp. 165-198. ISSN 0034-6527

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The increase in the information that firms can collect or purchase about network effects across consumers motivates two important questions: how does a firm's pricing strategy react to detailed information on network effects? Are the availability and use of such information beneficial or detrimental to consumer surplus? We develop a model in which a monopoly sells a network good and price discriminates based on information about consumers' influence and consumers' susceptibility to influence. The monopoly optimally offers consumers price discounts for their influence and charges price premia for their susceptibility; the price premia and the price discounts are simple functions of the pattern of network effects.We determine under which conditions, relative to uniform price, consumer surplus increases, and we characterize the value of information on network effects for the monopoly.

Item Type: Article
Uncontrolled Keywords: Network effects; Consumption externalities; Influence; Monopoly; Pricing; Price discrimination; Networks; Value of information; Degree distribution
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Economics, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 16 Sep 2015 10:32
Last Modified: 15 Jan 2022 00:26

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