Industrial Economics: Networks

Problem 3.1: Consider the following model of demand for a network good. There is a continuum of users with mass 1. Assume that a user who expects a total of 9" users to buy the networi: good will himself buy it at a price of p if and only if u + we 2 p, where n :2 Ill and I is drawn independently for each user from a uniform distribution on [0,1]. Notioe that, in contrast with the model seen in the lecture, the standalone value of the good is the same for all users; the users instead differ in how stroneg they value the network e'ects. (3) Fix 9', and suppose it is the some for all users. Find the consumer 45 who is indifferent between buying and not. Deduoe the demand for the network good for 9. given 9*. (b) look for e binned-expectations equilibrium. Show that there is a. unique equilibrium for p