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
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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)
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