Local Network Externalities and Market Segmentation
AbstractThis paper models interaction between groups of agents by means of a graph where each node represents a group of agents and an arc represents bilateral interaction. It departs from the standard Katz-Shapiro framework by assuming that network benefits are restricted only amongst groups of linked agents. It shows that even if rival firms engage in Bertrand competition, this form of network externalities permits strong market segmentation in which firms divide up the market and earn positive profits. The analysis also shows that some graphs or network structures do not permit such segmentation, while for others, there are easy to interpret conditions under which market segmentation obtains in equilibrium
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 725.
Length: 29 pages
Date of creation: 2005
Date of revision:
network structure ; network externalities ; price competition ; market segmentation;
Other versions of this item:
- Banerji, A. & Dutta, Bhaskar, 2009. "Local network externalities and market segmentation," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 605-614, September.
- A. Banerji & Bhaskar Dutta, 2008. "Local network externalities and market segmentation," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 08-13, Indian Statistical Institute, New Delhi, India.
- D7 - Microeconomics - - Analysis of Collective Decision-Making
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-06-10 (All new papers)
- NEP-COM-2006-06-10 (Industrial Competition)
- NEP-IND-2006-06-10 (Industrial Organization)
- NEP-MIC-2006-06-10 (Microeconomics)
- NEP-MKT-2006-06-10 (Marketing)
- NEP-NET-2006-06-10 (Network Economics)
- NEP-SOC-2006-06-10 (Social Norms & Social Capital)
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.:
- Rochet, Jean-Charles & Tirole, Jean, 2003.
"Platform Competition in Two-Sided Markets,"
IDEI Working Papers
152, Institut d'Économie Industrielle (IDEI), Toulouse.
- Nicholas Economides, 1997.
"The Economics of Networks,"
- Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
- Economides, Nicholas, 1996. "The economics of networks," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 673-699, October.
- Sanjeev Goyal, 2007.
"Introduction to Connections: An Introduction to the Economics of Networks
[Connections: An Introduction to the Economics of Networks]," Introductory Chapters, Princeton University Press.
- Farrell, Joseph & Katz, Michael, 2000.
"Innovation, Rent Extraction, and Integration in Systems Markets,"
Competition Policy Center, Working Paper Series
qt1441h2tj, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
- Farrell, Joseph & Katz, Michael L, 2000. "Innovation, Rent Extraction, and Integration in Systems Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 413-32, December.
- Joseph Farrell and Michael L. Katz., 2000. "Innovation, Rent Extraction, and Integration in Systems Markets," Economics Working Papers E00-286, University of California at Berkeley.
- Joseph Farrell & Michael L. Katz, 2003. "Innovation, Rent Extraction, and Integration in Systems Markets," Development and Comp Systems 0303005, EconWPA.
- Joseph Farrell & Michael L. Katz, 2001. "Innovation, Rent Extraction, and Integration in Systems Markets," Industrial Organization 0012001, EconWPA.
- Farrell, Joseph & Katz, Michael, 2000. "Innovation, Rent Extraction, and Integration in Systems Markets," Department of Economics, Working Paper Series qt15k4v7xb, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Luís Cabral, 2011.
"Dynamic Price Competition with Network Effects,"
Review of Economic Studies,
Oxford University Press, vol. 78(1), pages 83-111.
- Cabral, Luís M B, 2008. "Dynamic Price Competition with Network Effects," CEPR Discussion Papers 6687, C.E.P.R. Discussion Papers.
- Cabral, Luis, 2009. "Dynamic price competition with network effects," IESE Research Papers D/843, IESE Business School.
- Luis Cabral, 2007. "Dynamic Price Competition with Network Effects," 2007 Meeting Papers 326, Society for Economic Dynamics.
- Luis Cabral, 2008. "Dynamic Price Competition with Network Effects," Working Papers 08-4, New York University, Leonard N. Stern School of Business, Department of Economics.
- Luís Cabral, 2007. "Dynamic Price Competition with Network Effects," Working Papers 22, Portuguese Competition Authority.
- Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
- Choi, J.P., 1991.
"Network Externality, Compatibility Choice, and Planned Obsolescence,"
1991_67, Columbia University, Department of Economics.
- Choi, Jay Pil, 1994. "Network Externality, Compatibility Choice, and Planned Obsolescence," Journal of Industrial Economics, Wiley Blackwell, vol. 42(2), pages 167-82, June.
- Waldman, Michael, 1993. "A New Perspective on Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 273-83, February.
- Argenziano, Rossella & Ambrus, Attila, 2009. "Asymmetric Networks in Two-sided Markets," Scholarly Articles 4589709, Harvard University Department of Economics.
- Jullien, Bruno, 2000. "Competing in Network Industries: Divide and Conquer," IDEI Working Papers 112, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jul 2001.
- Matthew O. Jackson & Asher Wolinsky, 1994.
"A Strategic Model of Social and Economic Networks,"
1098, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Ambrus, Attila & Argenziano, Rossella, 2009.
"Asymmetric Networks in Two-Sided Markets,"
3204916, Harvard University Department of Economics.
- Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 105-23, March.
- Gabrielsen, Tommy Staahl & Vagstad, Steinar, 2008. "Why is on-net traffic cheaper than off-net traffic Access markup as a collusive device," European Economic Review, Elsevier, vol. 52(1), pages 99-115, January.
- Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 37-54, March.
- Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-41, August.
- Arun Sundararajan, 2004. "Local Network Effects and Network Structure," Industrial Organization 0412011, EconWPA.
- Sanjeev Goyal & Andrea Galeotti, 2007.
"A Theory of Strategic Diffusion,"
2007.70, Fondazione Eni Enrico Mattei.
- Oz Shy, 2010.
"A short survey of network economics,"
10-3, Federal Reserve Bank of Boston.
- Hornuf, Lars & Engert, Andreas, 2013. "Can Network Effects Impede Optimal Contracting in Debt Securities?," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79867, Verein für Socialpolitik / German Economic Association.
- Francis Bloch & Nicolas Quérou, 2008. "Pricing in networks," Working Papers hal-00356356, HAL.
- Sääskilahti, Pekka, 2007. "Monopoly pricing of social goods," MPRA Paper 3526, University Library of Munich, Germany.
- Fjeldstad, Øystein & Moen, Espen R & Riis, Christian, 2010. "Competition with Local Network Externalities," CEPR Discussion Papers 7778, C.E.P.R. Discussion Papers.
- Arnut Paothong & G. Ladde, 2014. "Agent-based modeling simulation under local network externality," Journal of Economic Interaction and Coordination, Springer, vol. 9(1), pages 1-26, April.
- Bloch, Francis & Quérou, Nicolas, 2013. "Pricing in social networks," Games and Economic Behavior, Elsevier, vol. 80(C), pages 243-261.
- Pradeep Dubey & Rahul Garg & Bernard De Meyer, 2013. "Competing for Customers in a Social Network (R)," Department of Economics Working Papers 13-01, Stony Brook University, Department of Economics.
- Giovanni Pegoretti & Francesco Rentocchini & Giuseppe Vittucci Marzetti, 2012. "An agent-based model of innovation diffusion: network structure and coexistence under different information regimes," Journal of Economic Interaction and Coordination, Springer, vol. 7(2), pages 145-165, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Helen Neal).
If references are entirely missing, you can add them using this form.