Lagged Network Externalities and Rationing in a Software Monopoly

Di Maria, Corrado and Köttl, Johannes (July 2002) Lagged Network Externalities and Rationing in a Software Monopoly. Former Series > Working Paper Series > IHS Economics Series 120


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Abstract: The paper presents a model of a software monopolist who benefits from a lagged network externality arising from consumers' feedback through the so-called bug-fixing effect. That is, the software producer is able to correct errors in the software code detected by previous users, improving her products over time. Another feature of the model is that it responds to the short life cycle of software products, implying time-of-purchase depending utility functions, which are in contrast to the usual durable goods models. Both of these modifications are incorporated in a standard two-periods durable goods monopoly, analysing questions of introductory pricing and quantity rationing. The model suggests that neither of these two instrumentsis able to explain why we see so much free software in the markets.;

Item Type: IHS Series
Keywords: 'Software monopoly' 'Lagged network externality' 'Introductory pricing' 'Rationing'
Classification Codes (e.g. JEL): L120, L860, D420, D450
Date Deposited: 26 Sep 2014 10:37
Last Modified: 27 Sep 2019 06:30
ISBN: 1605-7996

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