Price elasticities characterize the effect of price changes on demands in a multi-product context. We demonstrate and explain two perverse properties concerning price elasticities in the presence of network effects when three or more substitutable products are involved: Cross-price elasticities...

We show that in the presence of network effects, the effect of new firm entry on the equilibrium prices and demands of incumbent firms is not clear. In contrast to conventional thinking, we find that incumbent firms could use a higher price, have a larger demand, and earn a higher profit in the...