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Network markets and the structure of networks

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  • Jeroen C.J.M. van den Bergh

    () (Department of Spatial Economics, Faculty of Economics and Econometrics, Free University, De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands)

  • Roberto Roson

    () (Dipartimento Scienze Economiche, Universita' Ca' Foscari, Cannaregio - S.Giobbe 873, 30121 Venezia, Italy)

Abstract

Network markets are characterized by composite goods or services that can be obtained from alternative combinations of basic products. Examples are complex, multistage production and consumption systems, transport and communications. Efficiency in these markets depends on the net effect of the complementary and substitution relationships that exist between elementary products, which are determined by network topology and market structure. This paper examines factors that affect equilibria in network markets by considering a number of simple economic models of network markets. First it is shown how network topology influences profits and welfare under different market regimes. In particular, attention is given to price discrimination in monopolistic networks. Next evolution of networks is examined, which may occur via investment in new links by incumbent firms, or via entry of new firms in the network. It is shown that the number of competitors in equilibrium may not coincide with the socially optimal one, which in turn depends on the network structure. In order to show some concrete implications of the theoretical results two examples are presented, dealing with intermediate factors in an input-output production system, and with the trade-off between network externalities and economies of scale and density in hub-and-spoke transportation networks.

Suggested Citation

  • Jeroen C.J.M. van den Bergh & Roberto Roson, 2000. "Network markets and the structure of networks," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 34(2), pages 197-211.
  • Handle: RePEc:spr:anresc:v:34:y:2000:i:2:p:197-211
    Note: Received: June 1997/Accepted: October 1999
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    Cited by:

    1. Farrell, Alexander E. & Keith, David W. & Corbett, James J., 2003. "A strategy for introducing hydrogen into transportation," Energy Policy, Elsevier, vol. 31(13), pages 1357-1367, October.
    2. André de Palma & Robin Lindsey & Fang Wu, 2008. "Private Operators and Time-of-Day Tolling on a Congested Road Network," Journal of Transport Economics and Policy, University of Bath, vol. 42(3), pages 397-433, September.

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