Competition in the Korean Internet Portal Market: Network Effects, Profit, and Market Efficiency
AbstractInternet portals serve as platforms that coordinate advertising and user markets, and the portal market features network effects within and between both sides. We model the market structure in order to explain network effects and other factors of competition such as prices for advertisements, contents, and differentiated services offered. We empirically identify these effects with data from South Korea and analyze the role of the effects in terms of profit and market efficiency. The results indicate that a negative indirect network effect exists in the user market but is prevailed over by the direct network effect. This explains how Internet portals make profits by increasing user visits. Further, we show the existence of network effects causes consumer¡¯s surplus not to decrease with market concentration.
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Bibliographic InfoPaper provided by Seoul National University; Technology Management, Economics, and Policy Program (TEMEP) in its series TEMEP Discussion Papers with number 200925.
Length: 25 pages
Date of creation: Oct 2009
Date of revision: Nov 2009
Publication status: Published in Springer, Review of Industrial Organization (later version of this paper)
Internet Portal Industry; Network Effect; Two-sided Market; Market Efficiency;
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-17 (All new papers)
- NEP-COM-2010-04-17 (Industrial Competition)
- NEP-ICT-2010-04-17 (Information & Communication Technologies)
- NEP-MIC-2010-04-17 (Microeconomics)
- NEP-NET-2010-04-17 (Network Economics)
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