Effects of Industry Concentration on Quality Choices for Network Connectivity
AbstractI examine the effects of market concentration on connectivity in network industries. Using Cournot interactions for a duopoly, each network chooses quantity, quality for communications within the provider’s own network (internal quality), and quality for communications between the provider’s network and other networks (external quality). I find that large networks choose higher internal quality than do small networks and large networks choose higher internal quality than external quality. I also find that providers prefer flexible technologies that allow them to simultaneously choose outputs and qualities. Small networks prefer higher external quality than internal quality except when they make credible quality commitments before choosing output and have higher marginal operating costs than large networks. Networks choose identical external quality unless they have exogenously determined customer bases.
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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 04-08.
Length: 28 pages
Date of creation: Oct 2004
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Web page: http://www.NETinst.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-08-26 (All new papers)
- NEP-COM-2006-08-26 (Industrial Competition)
- NEP-MIC-2006-08-26 (Microeconomics)
- NEP-NET-2006-08-26 (Network Economics)
- NEP-SOC-2006-08-26 (Social Norms & Social Capital)
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