Pricing a network good to deter entry

Drew Fudenberg*, Jean Tirole

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    99 Scopus citations

    Abstract

    This paper develops a model of pricing to deter entry by a sole supplier of a network good. We show that the installed user base of a network good can serve a preemptive function similar to that of an investment in capacity if the entrant's good is incompatible with the incumbent's good and there are network externalities in demand. Consequently, the threat of entry can lead the incumbent to set low prices. We identify some factors that should be considered in thinking about the welfare effects of entry deterrence in this and similar models.

    Original languageEnglish (US)
    Pages (from-to)373-390
    Number of pages18
    JournalJournal of Industrial Economics
    Volume48
    Issue number4
    DOIs
    StatePublished - Dec 2000

    ASJC Scopus subject areas

    • Accounting
    • Business, Management and Accounting(all)
    • Economics and Econometrics

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