Local network externalities and market segmentation

A. Banerji () and Bhaskar Dutta ()
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A. Banerji: Delhi School of Economics

Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers from Indian Statistical Institute, New Delhi, India

Abstract: This paper models interaction between groups of agents by means of a graph where each node represents a group of agents and an arc represents bilateral interaction. It departs from the standard Katz-Shapiro framework by assuming that network benefits are restricted only amongst groups of linked agents. It shows that even if rival firms engage in Bertrand competition, this form of network externalities permits strong market segmentation in which firms divide up the market and earn positive profits. The analysis also shows that some graphs or network structures do not permit such segmentation, while for others, there are easy to interpret conditions under which market segmentation obtains in equilibrium.

Keywords: network structure; network externalities; price competition; market segmentation (search for similar items in EconPapers)
JEL-codes: D7 (search for similar items in EconPapers)
Date: 2008-12
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Related works:
Working Paper: Local Network Externalities and Market Segmentation (2005)
Journal Article: Local network externalities and market segmentation (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:ind:isipdp:08-13

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