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Abstract

A Fallacy of Dominant Price Vectors in Network Industries

The Review of Network Economics

Vol. 4, Issue 3 - September 2005, pp 197 - 204



Author
  Friedel Bolle
Europa Universitšt Viadrina Frankfurt, Oder
E-mail: [email protected]

Jana Heimel
Europa Universitšt Viadrina Frankfurt, Oder

Abstract
  In German mobile phone contracts, calls in the provider's home net are usually less expensive than external calls (to the network of a competitor). Thus customers have to compare vectors of prices, and such a comparison can be the source of a fallacy in the presence of network externalities. Even if a provider with a lower market share requires lower prices for calls in the home as well as to other networks, his average price may be higher than that of a larger provider. Not being aware of this fact is called "a fallacy of dominant price vectors". Based on a questionnaire study this fallacy turns out to be a real phenomenon.

Keywords: Mobile Phones, Off-Net, Price Discrimination, Network Externalities

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