IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Competition with Local Network Externalities

  • Fjeldstad, Øystein
  • Moen, Espen R
  • Riis, Christian

Local network externalities are present when the utility of buying from a firm not only depends on the number of other customers (global network externalities), but also on their identity and/or characteristics. We explore the consequences of local network externalities within a framework where two firms compete offering differentiated products. We first show that local network externalities, in contrast to global network externalities, don't necessarily sharpen competition. Then we show that the equilibrium allocation is inefficient, in the sense that the allocation of consumers on firms does not maximize social surplus. Finally we show that local network externalities create a difference between the marginal and the average consumer, which gives rise to inefficiently high usage prices and too high level of compatibility between the networks.

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.

File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7778
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

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.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7778.

as
in new window

Length:
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:cpr:ceprdp:7778
Contact details of provider: Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order 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.:

as in new window
  1. Daniel Birke & G. Swann, 2006. "Network effects and the choice of mobile phone operator," Journal of Evolutionary Economics, Springer, vol. 16(1), pages 65-84, April.
  2. Banerji, A & Dutta, Bhaskar, 2005. "Local Network Externalities and Market Segmentation," The Warwick Economics Research Paper Series (TWERPS) 725, University of Warwick, Department of Economics.
  3. repec:cup:cbooks:9780521805001 is not listed on IDEAS
  4. Øystein D. Fjeldstad & Amir Sasson, 2010. "Membership Matters: On the Value of Being Embedded in Customer Networks," Journal of Management Studies, Wiley Blackwell, vol. 47(6), pages 944-966, 09.
  5. Farrell, Joseph & Saloner, Garth, 1992. "Converters, Compatibility, and the Control of Interfaces," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 9-35, March.
  6. Sanjeev Goyal & Andrea Galeotti, 2007. "A Theory of Strategic Diffusion," Working Papers 2007.70, Fondazione Eni Enrico Mattei.
  7. repec:cup:cbooks:9780521800952 is not listed on IDEAS
  8. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
  9. Swann, G. M. Peter, 2002. "The functional form of network effects," Information Economics and Policy, Elsevier, vol. 14(3), pages 417-429, September.
  10. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  11. Catherine Tucker, 2008. "Identifying Formal and Informal Influence in Technology Adoption with Network Externalities," Management Science, INFORMS, vol. 54(12), pages 2024-2038, December.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:7778. 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: ()

The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.