Growing like Google: Endogenous Growth with Global Network Externalities

We study endogenous growth in the presence of domestic and international network externalities. In our model, network externalities provide natural protection to first movers and incentivize disruptive innovations without the need for patent protection. Domestic and global growth depends on the extent of network externalities, international compatibility costs, and anti-trust policies. We find that traditional anti-trust policies may lead to unintended outcomes. Policies such as banning price discrimination or collusion may reduce economic growth. In particular, price discrimination and collusion could increase economic growth when network externalities are large in relation to compatibility costs.