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The economics of networks

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  • Economides, Nicholas

Abstract

I 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. I discuss their sources and their effects on pricing and market structure. I distinguish between results that do not depend on the underlying industry microstructure (the "macro" approach) and those that do (the "micro" approach). I 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. I also briefly discuss the issue of interconnection fees for bottleneck facilities.
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  • Economides, Nicholas, 1996. "The economics of networks," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 673-699, October.
    • Handle: RePEc:eee:indorg:v:14:y:1996:i:6:p:673-699
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    30. Shy, O. & Chou, C-F., 1990. "Do Consumers Always Gain When More People Buy The Same Brand?," Papers 40-90, Tel Aviv.
    31. Nicholas S. Economides & Glenn A. Woroch, 1992. "Benefits and Pitfalls of Network Interconnection," Working Papers 92-31, New York University, Leonard N. Stern School of Business, Department of Economics.
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    33. Nicholas Economides & Charles Himmelberg, 1995. "Critical Mass and Network Size with Application to the US Fax Market," Working Papers 95-11, New York University, Leonard N. Stern School of Business, Department of Economics.
    34. Nicholas Economides, 1993. "Mixed Bundling in Duopoly," Working Papers 93-29, New York University, Leonard N. Stern School of Business, Department of Economics.
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    40. Nicholas Economides & William Lehr, 1994. "The Quality of Complex Systems and Industry Structure," Working Papers 94-06, New York University, Leonard N. Stern School of Business, Department of Economics.
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    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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