Do Consumers Gain or Lose when Network Externalities Become Stronger?

Chung-Hui Chou ()
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Chung-Hui Chou: I-Shou University

Economics Bulletin, 2020, vol. 40, issue 3, 2193-2200

Abstract: This paper constructs a duopoly market exhibiting network externalities to study the impacts of sales delegation on compatibility between firms' products and consumers' welfare. We find that modern enterprises are less-motivated to increase compatibility due to the fact that they need to provide more standalone value to cover the market fully than tradition firms do. Second, although stronger network externalities motivate firms to increase compatibility, depending on marginal cost of increasing compatibility, they may reduce consumers' surplus due to higher prices in a market with modern enterprises. On the other hand, consumers gain more surplus under stronger network externalities if the firms are traditional ones.

Keywords: consumers' surplus; fat-cat strategy; network externalities; partial compatibility; sales delegation (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2020-08-19
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