FUNCTIONAL DEGRADATION AND ASYMMETRIC NETWORK EFFECTS

In markets subject to network effects, firms often remove some functions of their original products and sell a functionally-downgraded version at a lower or zero price. This paper aims to provide a pure network effect based explanation of such a practice. Building a functional degradation model with...

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Published inThe Journal of industrial economics Vol. 54; no. 2; pp. 253 - 268
Main Authors CSORBA, GERGELY, HAHN, JONG-HEE
Format Journal Article
LanguageEnglish
Published Oxford, UK Blackwell Publishing Ltd 01.06.2006
Blackwell Publishers
Subjects
Computer software
Consumer economics
Consumer equilibrium
Consumer goods
Consumer spending
Consumer surplus
Economic models
Industrial economics
Market structure
Monopolistic competition
Network effects
Studies
Versioning
Writing
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Summary:In markets subject to network effects, firms often remove some functions of their original products and sell a functionally-downgraded version at a lower or zero price. This paper aims to provide a pure network effect based explanation of such a practice. Building a functional degradation model with asymmetric network effects, we investigate when and why firms have incentives to introduce a functionally-degraded good and discuss its welfare implication.
Bibliography:istex:A9970CC494825E4CEFD1882CEEDCB481434379D3
ark:/67375/WNG-60RPQVC4-G
We thank Mark Armstrong, Paul Belleflamme, Jay Pil Choi, Martin Diedrich, Georg Goetz, Bruno Jullien, Paul Klemperer, Meg Meyer, Marco Ottaviani, Patrick Rey, Jean Tirole, Tim Worrall, and seminar participants at various places for useful comments on earlier versions of the paper. We are especially grateful to the editor and two anonymous referees for insightful comments and suggestions.
ArticleID:JOIE282
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ISSN:0022-1821
1467-6451
DOI:10.1111/j.1467-6451.2006.00282.x