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Network Effects, Market Structure and Industry Performance

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  • Rabah Amir

    (University of Luxembourg and University of Arizona)

  • Natalia Lazzati

    (University of Arizona)

Abstract

This paper provides a thorough analysis of oligopolistic markets with positive demand-side network externalities and perfect compatibility. The minimal structure imposed on the model primitives is such that industry output increases in a firmr's rivals' total output as well as in the expected network size. This leads to a generalized equilibrium existence treatment that includes guarantees for a nontrivial equilibrium, and some insight into possible multiplicity of equilibria. We formalize the concept of industry viability and show that it is always enhanced by having more firms in the market and/or by technological improvements. We also characterize the e ¤ects of market structure on industry performance, with an emphasis on departures from standard markets. The approach relies on lattice-theoretic methods, which allow for a unified treatment of various general results in the literature on network goods. Several illustrative examples with closed-form solutions are also provided.

Suggested Citation

  • Rabah Amir & Natalia Lazzati, 2010. "Network Effects, Market Structure and Industry Performance," DEM Discussion Paper Series 10-16, Department of Economics at the University of Luxembourg.
  • Handle: RePEc:luc:wpaper:10-16
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    References listed on IDEAS

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    More about this item

    Keywords

    Network effects; demand-side externalities; monotone comparative statics; Cournot oligopoly; supermodularity;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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