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A start-up problem in a pure network good market and the role of a stand-alone effect with a monopoly: A revisit of Rohlfs (1974, 2001)

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  • Tsuyoshi Toshimitsu

    (Kwansei Gakuin University)

Abstract

We consider the start-up problem in the case of a monopoly providing a pure network good, such as in telecommunications and Internet businesses. This is a fundamental problem previously examined by Rohlfs (1974) and an issue closely related to coordination failure. As addressed in Lambertini and Orsini (2004), the coordination problem is not associated with network effects and depends on consumer expectations. We demonstrate the perspectives of Rohlfs (1974, 2001), finding the start-up problem is associated with critical mass under passive expectations and the stand-alone effect can be used to solve the problem.

Suggested Citation

  • Tsuyoshi Toshimitsu, 2023. "A start-up problem in a pure network good market and the role of a stand-alone effect with a monopoly: A revisit of Rohlfs (1974, 2001)," Economics Bulletin, AccessEcon, vol. 43(3), pages 1434-1443.
    • Handle: RePEc:ebl:ecbull:eb-23-00347
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    References listed on IDEAS

    as
    1. Belleflamme, Paul & Peitz, Martin, 2021. "The Economics of Platforms : Concepts and Strategy," LIDAM Reprints CORE 3185, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    3. Jeffrey Rohlfs, 1974. "A Theory of Interdependent Demand for a Communications Service," Bell Journal of Economics, The RAND Corporation, vol. 5(1), pages 16-37, Spring.
    4. Caillaud, Bernard & Jullien, Bruno, 2003. "Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-328, Summer.
    5. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    pure network good; network effect; stand-alone value; critical mass; start-up problem; coordination failure; passive expectations; monopoly;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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