Pricing strategies of goods with externalities

M. B. GORDON; J.-P. NADAL; D. PHAN; V. SEMESHENKO

EUROPEAN JOURNAL OF ECONOMIC AND SOCIAL SYSTEMS

Hermes-Lavoisier

Año: 2009 vol. 22 p. 11 - 18

1292-8895

This paper summarizes the effects of social influences in a monopoly market with heterogeneous agents. The market equilibria are presented in the limiting case of global influence. Considering static profit maximization there may exist two different regimes: to sell either to a large fraction of customers at a low price, or to a small fraction of them at a higher price. This arises for numerous mono-modal distributions of idiosyncratic willingness to pay if the social influence is strong enough. The seller´s optimal strategy switches from one regime to the other at parameter values where the demand has two different Nash equilibria; but the strategy of posting low prices to attract large fractions of buyers may fail due to a lack of coordination.