Elliot Lipnowski (Columbia University)

Pricing for Coordination

joint with Marina Halac and Daniel Rappoport

Abstract. A seller prices a good with positive network externalities. Purchasing decisions being complementary, a pricing policy typically yields equilibrium multiplicity. We study how personalized pricing can be used to mitigate this strategic uncertainty, guaranteeing a high revenue. An optimal policy offers personalized discounts to successively insulate against low-demand equilibria, and posts a high price to extract revenue from the induced higher demand. The result is price dispersion and a higher quantity of trade than would occur if the seller could choose her preferred equilibrium.