Monopoly Pricing 3 with Network Externalities Law and Economics Consulting Group

How should a monopolist price a durable good or a new technology that is subject to network externalities? In particular, should the monopolist set a low \introductory price" to attract a \critical mass" of adopters? In this paper, we provide intuition as to when and why introductory pricing might occur in the presence of network externalities. Incomplete information about demand or asymmetric information about costs is necessary for introductory pricing to occur in equilibrium when consumers are small. We are grateful to Joe Farrell, Arthur Fishman, Kai-Uwe K uhn, Jorge Padilla, three referees, and seminar participants at CORE, Tel Aviv University, University of Toulouse (ASSET Meeting) and University of California at Berkeley for useful comments and suggestions. The usual disclaimer applies.