Market Segment of Degraded Products with Network Externalities

摘要

Multi-product monopolist always supplies degraded products by removing some functions, services in the presence of network externalities, in order to segment market, increase the network size of original product, raise their prices, and accelerate market expansion by taking advantage of the network externalities. In this paper we analyze how the quality of degraded products influences original product's market expansion, life cycle and the whole market structure. We develop models to show that offering proper products tailored to the needs of different customers is crucial to achieve self-selection. We find that (1) When the competitive ability of the two products in each other's market is small, market segmentation is successful and the market structure is stable; (2) As competitive ability increasing to some extent, market segmentation is fail, but there still are some measures to prolong original product's life cycle, even reverse the market structure.