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Subsidising network technology adoption the case of publishers and E-readers

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  • Matttia De' Grassi Di Pianura

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    (CERNA - Centre d'économie industrielle - Mines ParisTech)

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    Abstract

    To market a new network technology effectively, manufacturers need to understand the structure and size of network effects associated with the product. If consumers' surplus from adoption depends positively on the number of interconnections in the network, early adopters may need to be subsidized until a critical mass is reached. Moreover, in a two-sided market where platforms and complementary contents are constrained to non-negative prices, subsidies can be provided both by platform manufacturers and byproducers of complementary contents. The article presents a model to analyse adoption dynamics with different subsidies and different stand-alone values for technology. The model shows that if the standalone value of technology is limited, subsidies from complementary contents producers may be pivotal to reach the critical mass. Moreover, under given conditions, this type of subsidies can lead to a more efficient adoption, increasing social welfare. In this case, assuming a monopolist platform manufacturer of the technology, complete contracts are needed to reach the Pareto optimal equilibrium.

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    Bibliographic Info

    Paper provided by HAL in its series Working Papers with number hal-00714447.

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    Date of creation: 11 Jun 2012
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    Handle: RePEc:hal:wpaper:hal-00714447

    Note: View the original document on HAL open archive server: http://hal-ensmp.archives-ouvertes.fr/hal-00714447
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    Related research

    Keywords: two-sided markets; network effects; technology adoption; copyright; vertical relations; media economics;

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    1. Rochet, Jean-Charles & Tirole, Jean, 2006. "Tying in Two-Sided Markets and the Honor All Cards Rule," IDEI Working Papers 440, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2007.
    2. Matthew Gentzkow, 2006. "Valuing New Goods in a Model with Complementarities: Online Newspapers," NBER Working Papers 12562, National Bureau of Economic Research, Inc.
    3. Joseph Farrell & Paul Klemperer, 2006. "Co-ordination and Lock-in: Competition with Switching Costs and Network Effects," Economics Papers 2006-W07, Economics Group, Nuffield College, University of Oxford.
    4. Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse.
    5. Stephen P. Ryan & Catherine Tucker, 2011. "Heterogeneity and the Dynamics of Technology Adoption," NBER Working Papers 17253, National Bureau of Economic Research, Inc.
    6. Olivier P. Bomsel, 2013. "Copyright And Brands In The Digital Age: Internalizing The Externalities Of Meaning," Contemporary Economic Policy, Western Economic Association International, vol. 31(1), pages 126-134, 01.
    7. Randal Heeb, 2003. "Randal Heeb Innovation and Vertical Integration in Complementary Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(3), pages 387-417, 09.
    8. Catherine Tucker, 2008. "Identifying Formal and Informal Influence in Technology Adoption with Network Externalities," Management Science, INFORMS, vol. 54(12), pages 2024-2038, December.
    9. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
    10. Olivier Bomsel & Heritiana Ranaivoson, 2009. "Decreasing Copyright Enforcement Costs: The Scope of a Gradual Response," Post-Print hal-00446189, HAL.
    11. Jeffrey Rohlfs, 1974. "A Theory of Interdependent Demand for a Communications Service," Bell Journal of Economics, The RAND Corporation, vol. 5(1), pages 16-37, Spring.
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