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General Network Effects and Welfare

Author

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  • Pollock, R.

Abstract

(In)direct network effects arise frequently in economic models but, for reasons of analytical tractability, are often assumed to be linear. Here, we examine the general non-linear case with two platforms. We establish the conditions characterising equilibria and show that welfare changes can be related in a simple, intuitive way to the degree of diminishing returns of the network effects function.

Suggested Citation

  • Pollock, R., 2009. "General Network Effects and Welfare," Cambridge Working Papers in Economics 0915, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0915
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    File URL: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe0915.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Farrell, Joseph & Saloner, Garth, 1986. "Installed Base and Compatibility: Innovation, Product Preannouncements, and Predation," American Economic Review, American Economic Association, vol. 76(5), pages 940-955, December.
    3. Church, Jeffrey & Gandal, Neil, 1992. "Network Effects, Software Provision, and Standardization," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 85-103, March.
    4. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, September.
    5. Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-328, Summer.
    6. Pollock, Rufus, 2005. "The Control of Porting in Two-Sided Markets," MPRA Paper 5023, University Library of Munich, Germany, revised Jun 2007.
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    Cited by:

    1. Tim Paul Thomes, 2010. "Vertically Related Markets of Collective Licensing of Differentiated Copyrights with Indirect Network Effects," Jena Economic Research Papers 2010-056, Friedrich-Schiller-University Jena.

    More about this item

    Keywords

    Network Effects; Indirect Network Effects; Platforms; Welfare;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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