New Network Goods.- João Leão, Vasco Santos

Abstract

New horizontally-differentiated goods involving product-specific network effects are quite prevalent. Consumers’ market-wide preference for each of these goods typically is initially unknown. Later, as sales data begin to accumulate, agents learn market-wide preferences, which thus become common knowledge. We study such a market, pinpointing the factors which determine whether the market-wide preferred firm reinforces its lead as time elapses, penetration and under-cost pricing prevail, and first- or last-mover effects in market-wide preferences occur.

Keywords: Network effects, horizontal differentiation