The optimal choice of internal decision-making structures in a network industry

Tsuyoshi Toshimitsu

No 166, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: Focusing on the role of compatibility between products, we consider the choice of internal decision-making structures—i.e., centralization and decentralization—and its effect on welfare in a network industry where there are horizontally differentiated products associated with network externalities. We demonstrate that if the degree of a network externality is sufficiently large, it is socially optimal to choose decentralization. Furthermore, in the case of consumer ex post expectations, it is optimal for the firm’s owners to choose centralization. However, it is socially preferable given a particular condition.

Keywords: internal decision-making; centralization; decentralization; network externality; compatibility; multiproduct monopoly (search for similar items in EconPapers)
JEL-codes: D43 D62 L14 L15 L41 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2017-09, Revised 2017-09
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind, nep-mic, nep-pay and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:166

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