Is conformism desirable? Network effects, location choice, and social welfare in a duopoly

Savorelli, Luca (2010) Is conformism desirable? Network effects, location choice, and social welfare in a duopoly. Bologna: Dipartimento di Scienze economiche DSE, p. 21. DOI 10.6092/unibo/amsacta/4526. In: Quaderni - Working Paper DSE (716). ISSN 2282-6483.
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Abstract

In this paper we study a duopoly where the network e¤ect is nonmonotone and the network can be overloaded. The firms choose prices and locations endogenously, and the agent's utility is influenced by the number of people patronizing the same firm she does. We determine the market equilibrium, and we study how the network effect influences social welfare. We compare this setting with the standard horizontal differentiation model with no network effects to understand whether and how conformism is socially desirable. The results show that whether network effects are desirable depends on how people are conformist, and whether overloading is feasible. If overloading is not possible (in either of the firm's network), and the total consumers' mass is sufficiently high, a network effect which is slightly concave increases social welfare. By contrast, if overloading is feasible, and the total consumers' mass is sufficiently small, social welfare is increased if the network effect is more concave than in the previous case.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Savorelli, Luca
Keywords
network effects, horizontal differentiation, duopoly, overloading, non-monotonicity
Subjects
ISSN
2282-6483
DOI
Deposit date
02 Feb 2016 11:44
Last modified
16 May 2016 07:21
URI

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