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Fulfilled-expectations Equilibria in Network Demand

The Review of Network Economics

Vol. 5, Issue 3 - September 2006, pp 320 - 336

  Adriaan Ten Kate
Head of the Economics Directorate, Federal Competition Commission, Mexico

Gunnar Niels
Director, Oxera, UK
E-mail: [email protected]

  Static demand models for homogeneous network goods give rise to fulfilled-expectations equilibrium demand (FEED) curves, which, contrary to normal demand curves, may be upward sloping at certain intervals. We analyze some, as yet unexplored, properties of the FEED curves. We spell out the one-shot non-cooperative game, the Nash equilibria of which constitute the FEED curve. We show that, in a network environment, pricing below marginal cost may be required to reach critical mass, and competition could represent an obstacle to network development rather than being its driving force.

Keywords: Fulfilled expectations, network effects, critical mass

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