Household Demand, Network Externality Effects and Intertemporal Price Discrimination

Winston T.H. Koh
JEL codes: 
Paper No. 05-2005

This paper examines the optimality of intertemporal price discrimination when network externality effects are present in the consumption of a durable good. We conduct our
study in two settings. In a model with two household types, utilities are dependent on the cumulative proportion of households that have purchased the durable good. Next, in
a model with a continuum of household types, we extend the analysis to the case where households consume both a durable good and a stream of non-durable goods. We show
that in both settings, the presence of network externalities facilitates a sales strategy with intertemporal price discrimination.