Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Monday, March 1, 2010

Dynamic price competition with network effects

Posted by D. Daniel Sokol

Luis Cabral (IESE Business School) has posted a paper on Dynamic price competition with network effects.

ABSTRACT: I consider a dynamic model of competition between two proprietary networks. Consumers die and are replaced with a constant hazard rate; and firms compete for new consumers to join their network by offering network entry prices. I derive a series of results pertaining to: a) existence and uniqueness of symmetric equilibria, b) monotonicity of the pricing function (e.g., larger networks set higher prices), c) network size dynamics (increasing dominance vs. reversion to the mean), and d) firm value (how it varies with network effects). Finally, I apply my general framework to the study of termination charges in wireless telecommunications. I consider various forms of regulation and examine their impact on firm profits and market share dynamics.   

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The Journal of Corporation Law recommends the following related article:

Shubha Ghosh, Carte Blanche, Quanta and Competition Policy, 34 J. Corp. L. 1209

Available in downloadable PDF form at: http://www.law.uiowa.edu/journals/jcl/pastissues.php

Posted by: Journal of Corporation Law | Mar 2, 2010 5:03:11 PM

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