Buying Decision Coordination and Monopoly Pricing of Network Goods

Abstract

We analyse how consumer heterogeneity affects buying behaviour and the monopoly pricing of a network good and its usage. Under perfect information, sufficiently high heterogeneity yields a unique equilibrium, and the unit price is increasing in heterogeneity. Under incomplete information, we have a global game. The unit price is independent of heterogeneity, and it tends to be higher than the perfect information price, because the monopoly biases its tariff structure to incorporate the uncertainty over usage revenues. Under incomplete information, profits are decreasing in uncertainty. Consumer surplus increases in uncertainty, only if the level of uncertainty is high initially.Coordination; Network externalities; Heterogeneity; Information; Equilibrium uniqueness; Global games