Business, Management and Accounting
8 years ago

Price changes in competitive markets with network effects may surprise consumers.

SSRN Electronic Journal
On Price Elasticities in the Presence of Network Effects
Zhiyuan Chen, Xiaoying Liang, Lei Xie, Houmin Yan

Paper Summary

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Price changes can affect demand for products differently in a competitive market with network effects. When three or more similar products are involved, the impact of price changes can be surprising: prices of one product can affect demand for another product in unexpected ways, and raising the price of a product may not always decrease its demand. This means that companies need to be careful when adjusting prices in a market with network effects.