Network externalities and the overprovision of quality by a monopolist

We investigate the behavior of a monopolist supplying a vertically differen tiated good with network externalities. Assuming a convex unit cost of qual ity improvements, we show that the presence of network externalities may yi eld oversupply of quality compared with the social optimum, when partial ma rket coverage emerges at equilibrium. Overall, the incentive to expand outp ut increases in the extent of network externalities, thereby partially coun terbalancing the social damage produced by the quality distortion.