We provide a general framework of oligopolistic competition model and allow for arbitrary number of firms, arbitrary (local) network effects, and arbitrary degree of product differentiation. The firms simultaneously determine the (potentially discriminatory) prices in the first (pricing) stage; following this, users determine their consumptions for each product and pay the prices in the second (consumption) stage.
We show that prices are set lower when either the network becomes denser (by adding links) or the intensity of network effects is stronger. Price dispersion, defined as the maximal price differential among users, turns out to be small for the monopoly case and the very competitive case (i.e., when there are many firms); this attains the maximum in the intermediate range. We also show that when we increase the number of firms, initially prices are always driven down (due to competition), but it can revert to an uprising trend when the number of firms becomes large.
We find that when there are only a few firms, improvement in network technology generates a higher firm profit. When there are many firms, however, improvement in network technology dampens the firms’ profitability. This implies that if free entry is considered, the improvement on network technology increases the equilibrium number of participating firms only when the entry cost is high.
Finally, we characterize the optimal network structures from the perspectives of firms and users, and find that they can sometimes coincide but at other times be completely opposite.
(based on a joint work with Ying-Ju Chen (HKUST) and Yves Zenou (Monash))
December 2nd, 2019
16:00 ~ 17:30
Junjie Zhou, National University of Singapore
Room 308, School of Information Management & Engineering, Shanghai University of Finance & Economics