Endogenous Expectations Management with Network Effects: A Note

Abstract

Abstract We examine the endogenous choice of commitment device to consumers’ expectations with network effects. Under Cournot competition, we show that choosing commitment to expectations for each firm is a dominant strategy regardless of the strength of network effects. However, under Bertrand competition, three types of commitment with both/no commitment/multiple emerge in equilibrium depending on the strength of network effects. Thus, we obtain different Pareto efficiency between Bertrand and Cournot competition, depending on the intensity of competition.