Stubbornness is unprofitable: On the role of consumer expectations in a monopoly network goods market

We consider the formation (or timing) of consumer expectations regarding network size. Using a simple monopoly model with network externalities, we examine how the formation of consumer expectations, i.e., either stubborn or flexible expectations, affects the fulfilled expected monopoly equilibrium. We demonstrate that an increase in stubbornness reduces both output and consumer surplus. Furthermore, it is unprofitable for the monopolist that consumers have stubborn expectations.