publication . Preprint . 2005

Durable-Goods Monopolists, Network Effects and Penetration Pricing

Name: Durable-Goods Monopolists, Network Effects and Penetration Pricing
Keywords: Penetration pricing, network externality

Cyrus C.Y. Chu; Hung-Ken Chien;

Open Access

Published: 01 Feb 2005

Summary

Abstract

We study the pricing problem of a durable-goods monopolist. With network effects, consumption externalities among heterogeneous groups of consumers generate a discontinuous demand function. Consequently, the lessor has to offer a low price in order to reach the mass market, whereas the seller has the option to build a customer base by setting a lower initial price and raise the price later in the mass market, which explains the practice of introductory pricing. Contrary to the existing literature, we show that profits from selling network goods may be higher than from leasing. Further, the seller in fact over-invests in R&D and makes the product more durable tha...

Subjects

free text keywords: Penetration pricing, network externality, jel:L1, jel:L11

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Research Papers in Economics

Preprint . 2005

Provider: Research Papers in Economics

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