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Network effects, market structure and industry performance

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  • Amir, Rabah
  • Lazzati, Natalia

Abstract

This paper analyzes oligopolistic markets with network externalities. Exploiting a minimal complementarity structure on the model primitives that allows for pure network goods, we prove existence of non-trivial fulfilled-expectations equilibrium. We formalize the concept of industry viability, investigate its determinants, and show that it improves with more firms in the market and/or by technological progress. These results enlighten some well-known conclusions from case studies in the management strategy literature. We also characterize the effects of market structure on industry performance, which depart substantially from ordinary markets. The approach relies on lattice-theoretic methods, supplemented with basic insights from nonsmooth analysis.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 146 (2011)
Issue (Month): 6 ()
Pages: 2389-2419

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Handle: RePEc:eee:jetheo:v:146:y:2011:i:6:p:2389-2419

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Web page: http://www.elsevier.com/locate/inca/622869

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Keywords: Network goods; Demand-side externalities; Industry viability; Industry start up; Supermodularity;

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Cited by:
  1. Roberto Burguet & R. Preston McAfee, 2008. "License Prices for Financially Constrained Firms," UFAE and IAE Working Papers 745.08, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Laussel, Didier & Resende, Joana, 2014. "Dynamic price competition in aftermarkets with network effects," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 106-118.
  3. Didier LAUSSEL & Ngo Van LONG & Joana RESENDE, 2014. "Network E¤ects, Aftermarkets and the Coase Conjecture : A Dynamic Markovian Approach," Cahiers de recherche 06-2014, Centre interuniversitaire de recherche en économie quantitative, CIREQ.

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