# Tag Info

11

Here's a solid example of it in formal literature, with about 1k citations: Competition with Switching Costs and Network Effects by Joseph Farrell and Paul Klemperer The general thought of the article is that customers who are "locked in" to a particular product can lead to competitors preferring to separate markets rather than competing with one ...

10

Even four decades ago, there were some references around, see for instance: Katz Michael L. and Carl Shapiro, 1985, "Network Externalities, Competition, and Compatibility," American Economic Review, 75, 424-440. The literature is mainly considering oligopoly theory, however, because competition between different standards is often an important ...

5

The argument is that the monopolist's decision is based on the demand curve (in effect matching marginal total revenue to marginal cost) so is not independent of the demand curve, and in that sense there is not a corresponding supply curve with price and quantity in equilibrium where the two curves cross; the monopolist equilibrium point is likely to be at a ...

4

In this book, pp. 484, Varian writes that: "the monopolist would like to offer $x^0_1$ at price $A$ and to offer $x^0_2$ at price $A + B + C$", and that this is not compatible with self selection. On to your question now; In this diagram, Varian must imply that the producer will earn the amalgamation of each individual's willingness to pay in a ...

3

Efficiency in general means that the item being traded should be given to the party that values it the most. In a competitive market, this means trade should continue as long as a consumer's value of a good, as captured by the demand curve, is greater than a seller's value of that good, captured by the supply curve. In a monopoly, seller's value is captured ...

3

First of all good question. I tried myself on that one, but if any other member of this wonderful site has additional input please also answer :) In a monopol we know there exists a consumer who would be willing to pay a price for an additional unit of the good that is higher than the additional cost to produce that unit. Possibility of Pareto improvement: ...

3

A monopolist maximizes profit. For me, it is usually easier to do this in the quantity space. So you rearange the demand and maximize $$\max_{Q_p,Q_r} \quad P_p(Q_p)Q_p + P_r(Q_r)Q_r - TC(Q_p+Q_r)$$ $$\max_{Q_p,Q_r} \quad (Q_p-10)Q_p + (28-2Q_r)Q_r - 5-2(Q_r+Q_p) -\frac{(Q_r+Q_p)^2}{8}$$ The FOC gives you two equations with two unknowns, $Q_r$ and $Q_p$, ...

3

This is going to be a hard find because it is not true. These companies have increasing returns to scale over the relevant range and for the foreseeable future. Many technologies, particularly marketing algorithms only get better when servicing larger numbers of people. The introductory/undergraduate literature that should be relevant in these cases is ...

3

You want to show $$\frac{dMR}{dQ} < 0.$$ As you point out in the comments $$\frac{dMR}{dQ}= Q\frac{d^2P(Q)}{dQ^2} + 2\frac{dP(Q)}{dQ}.$$ The linear case When $P(Q) = a - bQ$, assuming $a,b>0$, you get $$\frac{dMR}{dQ}= Q \cdot 0 - 2b = - 2b< 0.$$ The general case $$Q\frac{d^2P(Q)}{dQ^2} + 2\frac{dP(Q)}{dQ} < 0$$ does not hold for all ...

2

The profit function is given by: $$\pi = PQ(P) - C(Q(P), \mu) - tQ(P)$$ Assume demand is linear, s $$p = \alpha - \beta Q \to Q = b(\alpha - P),$$ where $b = 1/\beta$. So: $$Q_P = -b,$$ where I use subscripts to denote the partial derivatives. The first order condition for profit maximisation gives:  \begin{align*} &Q + P Q_P - C_Q Q_P - t ...

1

It was certainly a large part of the DOJ's case against Microsoft at the turn of the millennium. Get your favorite internet search tool and search for "doj v microsoft monopoly network effects" (no quotes) and you'll find the original complaint (https://www.justice.gov/atr/complaint-us-v-microsoft-corp): Microsoft has maintained a monopoly share (...

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