This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Compatibility and Market Structure for Network Goods

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Nicholas Economides
Fredrick Flyer

Additional information is available for the following registered author(s):

Abstract

This paper analyzes the economics of industries where network externalities are significant. In such industries, firms have strong incentives to adhere to common technical compatibility standards, so that they reap the network externalities of the whole group. However, a firm also benefits from producing an incompatible product thereby increasing its horizontal product differentiation. We show how competition balances these opposing incentives. We find that market equilibria often exhibit extreme disparities in sales, output prices, and profits across firms, despite no inherent differences in the firms' production technologies. This may explain the frequent domination of network industries by one or two firms. We also find that the presence of network externalities dramatically affects conventional welfare analysis, as total surplus in markets where these externalities are strong is highest under monopoly and declines with entry of additional firms.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://raven.stern.nyu.edu/networks/98-02.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Cecilia H. Aiello)
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 98-02.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: Nov 1997
Date of revision:
Handle: RePEc:ste:nystbu:98-02

Contact details of provider:
Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Cecilia H. Aiello).

Related research
Keywords: networks; network externalities; coalition structures; technical standards; compatibility;

Other versions of this item:

Find related papers by JEL classification:
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
D4 - Microeconomics - - Market Structure and Pricing

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Becker, Gary S, 1991. "A Note on Restaurant Pricing and Other Examples of Social Influences on Price," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1109-16, October. [Downloadable!] (restricted)
    Other versions:
  2. Claude, et al d'Aspremont, 1983. "On the Stability of Collusive Price Leadership," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 17-25, February. [Downloadable!] (restricted)
  3. Donsimoni, Marie-Paule & Economides, Nicholas S & Polemarchakis, Herakles M, 1986. "Stable Cartels," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 317-27, June. [Downloadable!] (restricted)
  4. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August. [Downloadable!] (restricted)
  5. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June. [Downloadable!] (restricted)
  6. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June. [Downloadable!] (restricted)
  7. Economides, Nicholas, 1996. "The economics of networks," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 673-699, October. [Downloadable!] (restricted)
    Other versions:
  8. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Blackwell Publishing, vol. 49(1), pages 3-13, January. [Downloadable!] (restricted)
  9. Nicholas Economides & Charles Himmelberg, 1995. "Critical Mass and Network Size with Application to the US Fax Market," Working Papers 95-11, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  10. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter. [Downloadable!] (restricted)
  11. Economides, Nicholas & White, Lawrence J., 1994. "Networks and compatibility: Implications for antitrust," European Economic Review, Elsevier, vol. 38(3-4), pages 651-662, April. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Iftekhar Hasan & Heiko Schmiedel, 2004. "Do networks in the stock exchange industry pay off? European evidence," International Finance 0405002, EconWPA. [Downloadable!]
    Other versions:
  2. Nicholas Economides, 2004. "Competition Policy In Network Industries: An Introduction," Industrial Organization 0407006, EconWPA. [Downloadable!]
    Other versions:
  3. Fabio M. Manenti & Ernesto Somma, 2002. "One-Way Compatibility, Two-Way Compatibility and Entry in Network Industries," Industrial Organization 0205001, EconWPA, revised 04 Oct 2002. [Downloadable!]
    Other versions:
  4. Nicholas Economides, 2000. "The Microsoft Antitrust Case The Microsoft Antitrust Case Rejoinder," Working Papers 00-09, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  5. Lazzarini, Sergio G., 2002. "The Performance Implications of Membership in Competing Firm Constellations: Evidence from the Global Airline Industry," Ibmec Working Papers wpe_23, Ibmec Working Paper, Ibmec São Paulo. [Downloadable!]
  6. Ramon Casadesus-Masanell & Francisco Ruiz-Aliseda, 2008. "Platform Competition, Compatibility, and Social Efficiency," Working Papers 08-32, NET Institute, revised Oct 2008. [Downloadable!]
  7. Nicholas Economides, 2006. "Public Policy in Network Industries," Working Papers 06-17, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
    Other versions:
  8. Javier Campos Méndez & Juan Luis Jiménez González, 2003. "Old and new ideas in Competition Policy," Documentos de trabajo conjunto ULL-ULPGC 2003-06, Facultad de Ciencias Económicas de la ULPGC. [Downloadable!]
  9. Skrzypacz, Andrzej & Mitchell, Matthew F., 2005. "Network Externalities and Long-Run Market Shares," Research Papers 1879, Stanford University, Graduate School of Business. [Downloadable!]
    Other versions:
  10. Nicholas Economides & Andrzej Skrzypacz, 2003. "Standards Coalitions Formation and Market Structure in Network Securities," Working Papers 03-08, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  11. Anette Boom & Pio Baake, . "Vertical Product Differentiation, Network Externalities, and Compatibility Decisions," Papers 010, Departmental Working Papers. [Downloadable!]
    Other versions:
  12. Sam Chandan & Christiaan Hogendorn, 2001. "The Bucket Brigade Pricing And Network Externalities In Peer-To-Peer Communications Networks," Wesleyan Economics Working Papers 2001-001, Wesleyan University, Department of Economics. [Downloadable!]
  13. Guibourg, Gabriela, 2001. "Interoperability and Network Externalities in Electronic Payments," Working Paper Series 126, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
  14. Jiawei Chen & Ulrich Doraszelski & Joseph E. Harrington, Jr., 2008. "Avoiding Market Dominance: Product Compatibility in Markets with Network Effects," Economics Working Paper Archive 537, The Johns Hopkins University,Department of Economics. [Downloadable!]
  15. Nicholas Economides & Andrzej Skrzypacz, 2004. "Standards Coalitions Formation and Market Structure in Network Industries," Microeconomics 0407008, EconWPA. [Downloadable!]
  16. Kari Kemppainen, 2004. "Competition and regulation in European retail payment systems," Microeconomics 0404008, EconWPA. [Downloadable!]
Statistics
Access and download statistics

Did you know? Cannot find something on IDEAS? Encourage the publisher to index it! Instructions.

This page was last updated on 2009-11-6.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.