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Networks, Network Externalities and Market Segmentation

Author

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  • A. Banerji

    (Delhi School of Economics)

  • Bhaskar Dutta

    (University of Warwick)

Abstract

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.

Suggested Citation

  • A. Banerji & Bhaskar Dutta, 2004. "Networks, Network Externalities and Market Segmentation," Working papers 124, Centre for Development Economics, Delhi School of Economics.
    • Handle: RePEc:cde:cdewps:124
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    References listed on IDEAS

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    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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