Thematic Clubs and the Supremacy of Network Externalities

Rabah Amir (), Jean Gabszewicz and Joana Resende

Journal of Public Economic Theory, 2014, vol. 16, issue 5, 706-729

Abstract: We explore the issue of minorities' survival in the presence of positive network externalities. We rely on a simple example of thematic clubs to illustrate why and how such survival problems might appear, first considering the case of simple-network effects (fully anonymous externalities) and then the case of cross-network effects (type-dependent externalities). In both cases, the analysis is framed as a simple noncooperative game with a continuum of players and binary action sets. There is a unique and interior Nash equilibrium under mild network effects and two corner equilibria under strong network effects, with one club driven out. A utilitarian planner would accentuate the clustering effects of network externalities, and call for the disappearance of the minority club more often than the noncooperative solution. A simple myopic learning algorithm capturing the progression of network lock-in effects is studied.

Date: 2014
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Working Paper: Thematic clubs and the supremacy of network externalities (2007)
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Journal of Public Economic Theory is currently edited by Rabah Amir, Gareth Myles and Myrna Wooders

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