Network Effects, Nonlinear Pricing and Entry Deterrence
- Topics:
- Competitive Pricing,
- Pricing and Margins
- Tags:
- Network,
- Network Effect,
- Networking
- Source:
- New York University
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Overview: A number of products that display positive network effects are used in variable quantities by heterogeneous customers. Examples include corporate operating systems, infrastructure software, web services and networking equipment. In many of these contexts, the magnitudes of network effects are influenced by gross consumption, rather than simply by user base. Moreover, the value an individual customer derives on account of these network effects may be related to the extent of their individual consumption, and therefore, the network effects may be heterogeneous across customers. This paper presents a model of nonlinear pricing in the presence of such network effects, under incomplete information, and with the threat of competitive entry.
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Format: PDF | Size: 583KB | Date: Jul 2003 | Pages: 42
