Intermediate Microeconomics · free preview
Network Effects and Estimating Demand
When one user's adoption raises others' demand, demand curves shift with the user base and markets can stall below critical mass, and empirical demand estimation must confront omitted variables and simultaneity before any curve, elasticity, or welfare number is believed.
1. Demand that moves with users
Demand that moves with users
2. Estimating a demand curve
Estimating a demand curve
3. Instruments and experiments
Instruments and experiments
4. Welfare with networks
Welfare with networks
5. The bandwagon mechanism
Why does a network good's demand curve shift with the user base?
6. Critical mass
What is critical mass in a network market?
7. The simultaneity trap
Why can't the slope of a price-quantity scatter be read as a demand curve?
8. What an instrument must do
What makes a cost shifter a valid instrument for demand estimation?
9. A bandwagon's demand
A phone network where each user values it at 2 dollars plus 1 dollar per thousand users. Compute willingness to pay at 5 thousand users, and write the number.
10. The threshold
The service costs 6 dollars to join. Compute the smallest whole thousands of users making willingness to pay at least 6, and write the number.
11. Valuation further up the network
Each user values the network at 2 dollars plus 1 dollar per thousand users. What is willingness to pay at 8 thousand users?
12. Joining at a high price
The network charges 9 dollars to join. What is the smallest user base, in whole thousands, at which joining is worth the fee?
13. The low-fee threshold
If the join price is only 4 dollars, what smallest whole thousands of users sustains membership?
14. Why networks need a push
A network good would sustain a large membership once established but stalls below critical mass. What policy logic follows?
15. Valuation at twelve thousand
Each user values the network at 2 dollars plus 1 dollar per thousand users. Compute willingness to pay at 12 thousand users, and write the number.
16. Users needed at a middle fee
The join price is 5 dollars. Compute the smallest whole thousands of users making willingness at least 5, and write the number.
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