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Internet network externalities

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  • Russel Cooper
  • Gary Madden

Abstract

A driving force behind the emergence of the 'new' or information economy is the growth of the internet network capacity. A fundamental problem in mapping this dynamic is the lack of an acceptable theoretical framework through which to direct empirical investigations. Most of the models in the literature on network externalities have been developed in a static framework, with the externalities viewed as instantaneous or self-fulfilling. The model specified here builds on the received theory from several sources to extend these features and develops a dynamic model that is both capable of econometric estimation and which provides as an output a direct measure of the network effect. Accordingly, the main goal of this paper is to find the magnitude of the external effect on internet network growth. In addition, this paper illustrates the ability of the panel data to generate estimates of structural parameters capable of explaining internet host growth.

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Bibliographic Info

Article provided by Inderscience Enterprises Ltd in its journal Int. J. of Management and Network Economics.

Volume (Year): 1 (2008)
Issue (Month): 1 ()
Pages: 21-43

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Handle: RePEc:ids:ijmnec:v:1:y:2008:i:1:p:21-43

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Web page: http://www.inderscience.com/browse/index.php?journalID==259

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Keywords: information economy; network externalities; internet growth; network economics.;

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  1. Schoder, Detlef, 2000. "Forecasting the success of telecommunication services in the presence of network effects," Information Economics and Policy, Elsevier, vol. 12(2), pages 181-200, June.
  2. Cooper, Russel J & Madan, Dilip B & McLaren, Keith R, 1995. "Approaches to the Solution of Stochastic Intertemporal Consumption Models," Australian Economic Papers, Wiley Blackwell, vol. 34(64), pages 86-103, June.
  3. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-41, August.
  4. Gandal, Neil, 1995. "Competing Compatibility Standards and Network Externalities in the PC Software Market," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 599-608, November.
  5. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
  6. Robert E. Litan & Alice M. Rivlin, 2001. "Projecting the Economic Impact of the Internet," American Economic Review, American Economic Association, vol. 91(2), pages 313-317, May.
  7. Bensaid, Bernard & Lesne, Jean-Philippe, 1996. "Dynamic monopoly pricing with network externalities," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 837-855, October.
  8. Economides, Nicholas & White, Lawrence J., 1994. "Networks and compatibility: Implications for antitrust," European Economic Review, Elsevier, vol. 38(3-4), pages 651-662, April.
  9. Nicholas Economides & Charles Himmelberg, 1995. "Critical Mass and Network Size with Application to the US Fax Market," Working Papers 95-11, New York University, Leonard N. Stern School of Business, Department of Economics.
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