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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Bibliographic Details
Published inThe Journal of industrial economics Vol. LIV; no. 2; pp. 253 - 268
Main Authors Csorba, Gergely, Hahn, Jong-Hee
Format Journal Article
LanguageEnglish
Published 01.06.2006
Subjects
Economic networks
Product design
Product development
Product quality
Software
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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. Reprinted by permission of Blackwell Publishers
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ISSN:0022-1821