Entry into complementary good markets with network effects

Gastón Llanes (), Andrea Mantovani and Francisco Ruiz-Aliseda

No 16-12, Working Papers from NET Institute

Abstract: We examine whether an incumbent active in a market with strong network effects can be challenged by an entrant already active in the market of a complementary good. When only the entrant benefits from such a complementarity in the network market, we find that it can conquer such a market if and only if the degree of complementarity is large enough. In such cases, the entrant may use the network good as a loss-leader so as to expand the market of the complementary good. When the incumbent's network good is enhanced too by the existence of the complementary good, we study if the entrant is better or worse off. Finally, we argue that, even though pure bundling may be an effective entry strategy and it may be socially desirable, it may be harmful for the entrant to use it.

Keywords: network effects; complementarities; bundling; incumbency advantage; entry (search for similar items in EconPapers)
JEL-codes: L13 L14 L41 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2016-09
New Economics Papers: this item is included in nep-com, nep-mic, nep-mkt and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Entry into Complementary Good Markets with Network Effects (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:net:wpaper:1612

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