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The Economics of Networks

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  • Nicholas Economides

    (Stern School of Business, New York University)

Abstract

We analyze the salient features of networks and point out the similarities between the economic structure of networks and the structure of vertically related industries. The analysis focuses on positive consumption and production externalities, commonly called network externalities. We discuss their sources and their effects on pricing and market structure. We distinguish between results that do not depend on the underlying industry microstructure (the "macro" approach) and those that do (the "micro" approach). We analyze the issues of compatibility, coordination to technical standards, interconnection and interoperability, and their effects on pricing and quality of services and on the value of network links in various ownership structures. We also briefly discuss the issue of interconnection fees for bottleneck facilities.

Suggested Citation

  • Nicholas Economides, 1997. "The Economics of Networks," Industrial Organization 9701002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:9701002
    Note: Type of Document - PDF/PostScript; prepared on IBM PC; to print on HP; pages: 37; figures: included/request from author/draw your own. Published in International Journal of Industrial Organization, vol. 16, no. 4
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