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Local network externalities and market segmentation

  • Banerji, A.
  • Dutta, Bhaskar

This 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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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 27 (2009)
Issue (Month): 5 (September)
Pages: 605-614

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Handle: RePEc:eee:indorg:v:27:y:2009:i:5:p:605-614
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. 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.
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  12. 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.
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  17. repec:hrv:faseco:4589709 is not listed on IDEAS
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