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Network Benefit Funciton and Indirect Network Externalities

Author

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  • Sangin Park

    (Seoul National University)

Abstract

In most theoretical and empirical studies of network externalities, the consumer's benefit from network externaltities is represented by the network benefit function which is a function of the number of users (the network size) and is well taken as intutive in the case of firect network externalities. In this paper, we explicitly model the mechanism of indirect network externalities as a positive feedback effect of the demands for a hardware product via an increased variety of available software, providing conditions in which the network benefit function can be dervied in the presence of indirect network externalities. Moreover, it will be shown that a linear network benefit function can be obtained under a specific utility function of a hardware/software system.

Suggested Citation

  • Sangin Park, 2006. "Network Benefit Funciton and Indirect Network Externalities," Korean Economic Review, Korean Economic Association, vol. 22, pages 5-19.
    • Handle: RePEc:kea:keappr:ker-20060630-22-1-01
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    More about this item

    Keywords

    network benefit function; network size; indirect network externality;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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