Monopoly Pricing of Social Goods

Pekka Sääskilahti*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

2 Citations (Scopus)

Abstract

We analyse the roles of network connectivity and topology on the monopoly pricing of network goods which enable social interaction between consumers. Connectivity between network members induces the well-known network externalities effect, while the topological effect is caused by the incompleteness of the social network’s linkage, and it has not been previously recognised in this context. We find that the topological effect counteracts, and dominates, the connectivity effect by reducing the monopoly’s capacity to extract consumer surplus. Our results are seen to hold in real cases of social network businesses. The monopolist benefits from price discrimination based on consumers’ social connections, but this has a social cost as consumer surplus loss is higher than the increase in profits, with the highly connected consumers being the primary losers. Therefore, privacy policies restricting excessive social profiling and tracking can have an antitrust role too. Our approach also extends the theory of multi-sided markets in relation to the underlying relations graph of different market sides.

Original languageEnglish
Peer-reviewed scientific journalInternational Journal of the Economics of Business
Volume22
Issue number3
Pages (from-to)429-448
Number of pages20
ISSN1357-1516
DOIs
Publication statusPublished - 02.09.2015
MoE publication typeA1 Journal article - refereed

Keywords

  • 511 Economics
  • Monopoly
  • Multi-sided markets
  • Networks
  • Privacy
  • Social relations
  • Topology

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