Indirect Network Effects and Trade Liberalization
AbstractIndirect network effects exist when the utility of consumers is increasing in the variety of complementary products available for use with an electronic hardware device. In this paper, we examine how trade liberalization affects production structure in the presence of indirect network effects. For these purposes we construct a simple two-country model of trade with incompatible country-specific hardware technologies. It is shown that, given that both countries' hardware devices remain in the trading equilibrium, both countries gain from trade liberalization. It is also shown that if only one country's hard-ware remains in the integrated market, the other country may lose from trade liberalization.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 15132.
Date of creation: 2009
Date of revision:
Indirect network effects; trade liberalization;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
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- Chou, Chien-fu & Shy, Oz, 1996. "Do consumers gain or lose when more people buy the same brand," European Journal of Political Economy, Elsevier, vol. 12(2), pages 309-330, September.
- Church, Jeffrey & Gandal, Neil, 1992. "Network Effects, Software Provision, and Standardization," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 85-103, March.
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