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Competition in the Korean Internet Portal Market: Network Effects, Profit, and Market Efficiency

Author

Listed:
  • Junseok Hwang
  • Dongook Choi
  • Jongeun Oh
  • Yeonbae Kim

    () (Technology Management, Economics and Policy Program(TEMEP), Seoul National University)

Abstract

Internet portals serve as platforms that coordinate advertising and user markets, and the portal market features network effects within and between both sides. We model the market structure in order to explain network effects and other factors of competition such as prices for advertisements, contents, and differentiated services offered. We empirically identify these effects with data from South Korea and analyze the role of the effects in terms of profit and market efficiency. The results indicate that a negative indirect network effect exists in the user market but is prevailed over by the direct network effect. This explains how Internet portals make profits by increasing user visits. Further, we show the existence of network effects causes consumer¡¯s surplus not to decrease with market concentration.

Suggested Citation

  • Junseok Hwang & Dongook Choi & Jongeun Oh & Yeonbae Kim, 2009. "Competition in the Korean Internet Portal Market: Network Effects, Profit, and Market Efficiency," TEMEP Discussion Papers 200925, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Nov 2009.
  • Handle: RePEc:snv:dp2009:200925
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    File URL: ftp://147.46.237.98/DP-25.pdf
    File Function: First version, 2009
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    References listed on IDEAS

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    More about this item

    Keywords

    Internet Portal Industry; Network Effect; Two-sided Market; Market Efficiency;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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