Direct and Indirect Network Effects are Equivalent: A Comment on “Direct and Indirect Network Effects: Are They Equivalent?”
AbstractClements (2004) makes the following two claims: (i) unlike direct network effects, increases in the size of the market do not, in the case of indirect network effects, make standardization more likely, but (ii) indirect network effects are associated with excessive standardization. We show in Clements’ framework that neither of these results are correct: standardization is more likely as the number of software firms increases and when the type of market equilibrium is unique— there are only multiple networks or only standardization—there is never excessive standardization, but there could be insufficient standardization, just as is the case with direct network effects.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9097.
Date of creation: Aug 2012
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Other versions of this item:
- Church, Jeffrey & Gandal, Neil, 2012. "Direct and indirect network effects are equivalent: A comment on “Direct and Indirect Network Effects: Are They Equivalent?”," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 708-712.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
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