Indirect Network Eects and the Impact of Trade Liberalization: A Note

Iwasa Kazumichi and Toru Kikuchi ()

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

JEL-codes: F12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int and nep-net
Date: 2008
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