Indirect Network Effects and Trade Liberalization
Indirect network effects exist when the utility of consumers is increasing in the variety of complementary products available for use with an electronic hardware device. In this paper, we examine how trade liberalization affects production structure in the presence of indirect network effects. For these purposes we construct a simple two-country model of trade with incompatible country-specific hardware technologies. It is shown that, given that both countries' hardware devices remain in the trading equilibrium, both countries gain from trade liberalization. It is also shown that if only one country's hard-ware remains in the integrated market, the other country may lose from trade liberalization.
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- Church, Jeffrey & Gandal, Neil, 1992. "Network Effects, Software Provision, and Standardization," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 85-103, March.
- Chou, Chien-fu & Shy, Oz, 1996. "Do consumers gain or lose when more people buy the same brand," European Journal of Political Economy, Elsevier, vol. 12(2), pages 309-330, September.
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