Household Demand, Network Externality Effects and Intertemporal Price Discrimination

• Main Author: KOH, Winston T. H.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2005
• Subjects: intertemporal price discrimination; durable good; household demand; network externality; Behavioral Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/824; https://ink.library.smu.edu.sg/context/soe_research/article/1823/viewcontent/IPD_network.pdf
• Institution: Singapore Management University

This paper examines the optimality of intertemporal price discrimination when network externality effects are present in the consumption of a durable good. We conduct our study in two settings. In a model with two household types, utilities are dependent on the cumulative proportion of households that have purchased the durable good. Next, in a model with a continuum of household types, we extend the analysis to the case where households consume both a durable good and a stream of non-durable goods. We show that in both settings, the presence of network externalities facilitates a sales strategy with intertemporal price discrimination.