Barriers to network-specific investment
We examine incentives for network-specific investment and consider the implications for network governance. We model a two-sided market in which participants making payments over a network platform can invest in a technology that reduces the marginal cost of using the platform. A network effect results in multiple equilibria -- either all agents invest and use of the platform is high or no agents invest and use of the platform is low. The high-use equilibrium can be implemented if commitment is feasible. When the platform cannot commit to usage fees, investment in the platform-specific technology will be held-up, thus implementing the low-investment equilibrium. As a result, governance structures necessary to achieve commitment will be preferred to those necessary merely to achieve coordination. For example, mutual ownership by users of a network platform may emerge where users face risk of ex-post renegotiation. Such a governance structure will also be sufficient to avoid low investment attributable to the network effect. (Copyright: Elsevier)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 10 (2007)
Issue (Month): 4 (October)
|Contact details of provider:|| Postal: Marina Azzimonti, Department of Economics, Stonybrook University, 10 Nicolls Road, Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/red/
More information through EDIRC
|Order Information:|| Web: https://www.economicdynamics.org/subscription-information/ Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joseph Farrell & Garth Saloner, 1985.
"Standardization, Compatibility, and Innovation,"
RAND Journal of Economics,
The RAND Corporation, vol. 16(1), pages 70-83, Spring.
- Joseph Farrell & Garth Saloner, 1984. "Standardization, Compatibility and Innovation," Working papers 345, Massachusetts Institute of Technology (MIT), Department of Economics.
- Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, 09.
- James J. McAndrews & Zhu Wang, 2006. "Microfoundations of two-sided markets: the payment card example," Payments System Research Working Paper PSR WP 06-01, Federal Reserve Bank of Kansas City.
- James McAndrews & Zhu Wang, 2007. "Microfoundations of Two-sided Markets: The Payment Card Example," DNB Working Papers 128, Netherlands Central Bank, Research Department.
- repec:rje:randje:v:37:y:2006:3:p:720-737 is not listed on IDEAS
- Bruno Jullien, 2005. "Two-sided Markets and Electronic Intermediaries," CESifo Economic Studies, CESifo, vol. 51(2-3), pages 233-260.
- Bruno Jullien, 2004. "Two-Sided Markets and Electronic Intermediaries," CESifo Working Paper Series 1345, CESifo Group Munich.
- Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
- Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
- Klein, Benjamin, 1988. "Vertical Integration as Organizational Ownership: The Fisher Body-General Motors Relationship Revisited," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(1), pages 199-213, Spring.
- repec:rje:randje:v:37:y:2006:3:p:668-691 is not listed on IDEAS
- Michael Kurth, 1985. "Review," Public Choice, Springer, vol. 45(2), pages 223-224, January.
- Cardillo, Matthew & Martin, Antoine & Orland0, Michael, 2004. "Innovation on networks: Coordination, governance, and the case of VISA," Journal of Financial Transformation, Capco Institute, vol. 12, pages 104-106. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:red:issued:06-205. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.