Adaptive Expectations and Dynamic Models for Network Goods

In this work, we consider a utility function that is influenced by the value of network externality function at the consumer’s expected market size/share. Using this utility function, a market share adjustment function is introduced and is utilized to develop dynamic models of existing rational and...

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Bibliographic Details
Published in:Economic analysis and policy 2013-12, Vol.43 (3), p.353-373
Main Authors: Paothong, Arnut, Ladde, G.S.
Format: Article
Language:English
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Summary:In this work, we consider a utility function that is influenced by the value of network externality function at the consumer’s expected market size/share. Using this utility function, a market share adjustment function is introduced and is utilized to develop dynamic models of existing rational and static expectation processes. In addition, the role and scope of dynamic models of market share adjustment process are extended to the well-known adaptive expectation and its extension processes. The properties of equilibrium states of dynamic models are investigated which include location, stability, oscillation and the initial states in systematic and unified way. The most significant byproduct of presented results is that the properties of equilibrium states depend on the type of consumer expectation of a network good and the parameters of dynamic market share adjustment processes.
ISSN:0313-5926
DOI:10.1016/S0313-5926(13)50036-1