Indirect Network Effects, Trade Liberalization, and Excess Standardization
AbstractIndirect network effects exist when the utility of consumers is increasing in the variety of complementary software products available for use with an electronic hardware device. In this study, 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 two incompatible hardware technologies. It is shown that, given that both types of hardware exist before trade liberalization, liberalization may reduce the variety of hardware technology via intensified network effects. It is also shown that, contrary to the findings of previous studies, some consumers may become worse off as the result of trade. In other words, trade liberalization,which forms the basis for a greater variety of software products, may work as a catalyst for excess hardware standardization.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 4399.
Date of creation: 2007
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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-14 (All new papers)
- NEP-ICT-2007-08-14 (Information & Communication Technologies)
- NEP-INT-2007-08-14 (International Trade)
- NEP-NET-2007-08-14 (Network Economics)
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