Competition in network goods markets

The information revolution over the recent decades has changed how we think about consumption and production over a wide range of goods and services. Factors such as the consumer's limited choice possibilities at a given budget and the cost structure on t he production side has shown to be limited in explaining outcomes of markets for information goods. Rather elements such as lock-in, incomplete information, product heterogeneity, and network effects are considered to be of importance in explaining market outcomes. In this research project I will develop theoretical models with the aim of explaining equilibrium outcomes under certain market condition with a special emphasis on software products. My research is organized in two sub-projects: Sub-project 1: Software piracy and its impact on commercial vs. open source software competition: In a market characterized by network externalities, how does the presence of software piracy affect pricing incentives of commercial software developers in competition wit h a free of charge open source competitor? What are the consequences for the competitive outcome? The results suggest that a combination of strong network effects and high degree of differentiation between products are likely to result in a market dominat ed by commercial software conditional on a initial competitive advantage in size of the installed base. Sub-project 2: Platform competition with social networks on the buyer side: Markets where buyers and seller interact over platforms such as operating s ystems and game consoles are called two-sided markets. Since sellers care about how many individuals they can sell to, and buyers care about the quality and quantity of the products sold over the platform, multiple Nash equilibria can emerge. This sub-pro ject aims to identify likely market outcomes whenever buyers engage in social networks, and their utility depends on the choices made by agents in their network in addition to the content available on platforms.