Indirect Network Effects and the Impact of Trade Liberalization: A Note
Indirect network effects exist when the utility of consumers is increasing in the variety of complementary software products available for use with an electronic hardware device. In this note, 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 two incompatible hardware technologies. It is shown that, given that both types of hardware exist before trade liberalization, liberalization may reduce the variety of hardware technology via intensified network effects. It is also shown that, contrary to the findings of previous studies, some consumers may become worse off as the result of trade. In other words, trade liberalization, which forms the basis for a greater variety of software products, may work as a catalyst for Pareto inferior outcomes.
|Date of creation:||2008|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
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.:
- Gandal, N. & Shy, O., 1996.
"Standardization Policy and International Trade,"
12-96, Tel Aviv - the Sackler Institute of Economic Studies.
- Christian Broda & David E. Weinstein, 2004.
"Globalization and the Gains from Variety,"
NBER Working Papers
10314, National Bureau of Economic Research, Inc.
- David Weinstein & Christian Broda, 2004. "Globalization and the Gains from Variety," 2004 Meeting Papers 530, Society for Economic Dynamics.
- David E. Weinstein & Christian Broda, 2004. "Globalization And The Gains From Variety," Econometric Society 2004 Latin American Meetings 327, Econometric Society.
- Christian Broda & David E. Weinstein, 2004. "Globalization and the gains from variety," Staff Reports 180, Federal Reserve Bank of New York.
- David Weinstein & Christian Broda, 2004. "Globalization and the Gains from Variety," Econometric Society 2004 North American Summer Meetings 508, Econometric Society.
- Shy,Oz, 2001.
"The Economics of Network Industries,"
Cambridge University Press, number 9780521800952, October.
- Dominique Desruelle & Gerard Gaudet & Yves Richelle, 1995.
"Complementarity, Coordination and Compatibility: The Role of Fixed Costs in the Economics of Systems,"
9508001, EconWPA, revised 14 Aug 1995.
- Desruelle, Dominique & Gaudet, Gerard & Richelle, Yves, 1996. "Complementarity, coordination and compatibility: The role of fixed costs in the economics of systems," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 747-768, October.
- Toru Kikuchi, 2007.
"Network Externalities And Comparative Advantage,"
Bulletin of Economic Research,
Wiley Blackwell, vol. 59(4), pages 327-337, October.
- Henkel, Joachim & Stahl, Konrad O. & Walz, Uwe, 1997.
"Coalition building in a spatial economy,"
117, University of Tübingen, School of Business and Economics.
- Chien-Fu Chou & Oz Shy, 1991. "Intra-industry Trade and the Variety of Home Products," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 40516-40516, May.
- Nicholas Economides, 1995.
"The Economics of Networks,"
94-24, New York University, Leonard N. Stern School of Business, Department of Economics, revised Sep 1995.
- Economides, Nicholas, 1996. "The economics of networks," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 673-699, October.
- Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), pages -, December.
- Church, J. & Gandal, N., 1993.
"Strategic Entry Deterrence: Complementary Products as Installed Base,"
16-93, Tel Aviv.
- Church, Jeffrey & Gandal, Neil, 1996. "Strategic entry deterrence: Complementary products as installed base," European Journal of Political Economy, Elsevier, vol. 12(2), pages 331-354, September.
- 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.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975.
"Monopolistic Competition and Optimum Product Diversity,"
The Warwick Economics Research Paper Series (TWERPS)
64, University of Warwick, Department of Economics.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:8662. 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: (Joachim Winter)
If references are entirely missing, you can add them using this form.