Market-Dependent Preferences, Positive and Negative Network Effects and Welfare

Date : Mardi | 2023-03-28 à 12h30
Lieu : Salle des thèses

Yassine BADRA (Panthéon - Assas University)

This article specifies the conditions on the utility function and on the cost function for which congestion or production overcapacity emerge in a market when information is perfect and prices are flexible. Consumers are of two types: some appreciate a large production markets, some don’t. A typology underlines the shape of utility functions and cost functions which generates an optimal production overcapacity or an optimal congestion at the pure strategy Nash equilibrium. The result is independent on the nature (positive or negative) of the consumption externalities that affect the consumers’ preferences. A welfare analysis is performed. We underline the conditions in which the social planner chooses whether to clear the market or not. Application to network economy is developed. Extensions to the following three cases are provided: 1) unsold stocks of goods with or without warehouse inventories, 2) quality of goods and 3) software markets.