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.
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Length: 37 pages Date of creation: 22 Jan 1997 Date of revision: 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 Contact details of provider: Web page: http://129.3.20.41
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Nicholas Economides, 1995.
"The Economics of Networks,"
Working Papers
94-24, New York University, Leonard N. Stern School of Business, Department of Economics, revised Sep 1995.
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