Competitive pricing with network externalities

Network externality is widely in existence of many service industries. This paper analyzes competitive pricing with network extemalitiesa by a two-stage dynamic duopoly pricing model, and gives the solution by game theory. Comparing with that in perfect monopoly pricing model with network externalities, we show that: when the intensities of network externalities are sufficient high, (1) Subgame perfect Nash equilibrium prices increase as time passes just as in dynamic monopoly pricing, thus Coase Conjecture can be overcome. (2) In contrast to dynamic monopoly pricing, the higher the intensity of network externality, the less profits enterprises can get in duopoly pricing. (3) While enterprises have different intensities of network externalities, the enterprise with higher intensity of network externality tends to increase the price obviously, and can get more profit at the same time.