Indirect Network Effects and the Impact of Trade Liberalization: A Note
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 note, 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 Pareto inferior outcomes.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 8662.
Date of creation: 2008
Date of revision:
Other versions of this item:
- Kazumichi Iwasa & Toru Kikuchi, 2009. "Indirect network effects and the impact of trade liberalization: A note," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 18(4), pages 541-552.
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-10 (All new papers)
- NEP-INT-2008-05-10 (International Trade)
- NEP-NET-2008-05-10 (Network Economics)
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