Direct and indirect network effects are equivalent: A comment on “Direct and Indirect Network Effects: Are They Equivalent?”
Clements (2004) makes the following two claims: (i) unlike direct network effects, increases in the size of the market do not, in the case of indirect network effects, make standardization more likely, but (ii) indirect network effects are associated with excessive standardization. We show in Clements' framework that neither of these results are correct: standardization is more likely as the number of software firms increases and when the type of market equilibrium is unique – there are only multiple networks or only standardization – there is never excessive standardization, but there could be insufficient standardization, just as is the case with direct network effects.
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Volume (Year): 30 (2012)
Issue (Month): 6 ()
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References listed on IDEAS
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- Church Jeffrey & Gandal Neil & Krause David, 2008.
"Indirect Network Effects and Adoption Externalities,"
Review of Network Economics,
De Gruyter, vol. 7(3), pages 1-22, September.
- Jeffrey Church & Neil Gandal & David Krause, 2003. "Indirect Network Effects and Adoption Externalities," Microeconomics 0301001, EconWPA.
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- Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
- Farrell, Joseph & Saloner, Garth, 1986. "Standardization and variety," Economics Letters, Elsevier, vol. 20(1), pages 71-74.
- Clements, Matthew T., 2004. "Direct and indirect network effects: are they equivalent?," International Journal of Industrial Organization, Elsevier, vol. 22(5), pages 633-645, May. Full references (including those not matched with items on IDEAS)
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