Network Benefit Funciton and Indirect Network Externalities

Sangin Park
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Sangin Park: Seoul National University

Korean Economic Review, 2006, vol. 22, 5-19

Abstract: In most theoretical and empirical studies of network externalities, the consumer's benefit from network externaltities is represented by the network benefit function which is a function of the number of users (the network size) and is well taken as intutive in the case of firect network externalities. In this paper, we explicitly model the mechanism of indirect network externalities as a positive feedback effect of the demands for a hardware product via an increased variety of available software, providing conditions in which the network benefit function can be dervied in the presence of indirect network externalities. Moreover, it will be shown that a linear network benefit function can be obtained under a specific utility function of a hardware/software system.

Keywords: network benefit function; network size; indirect network externality (search for similar items in EconPapers)
JEL-codes: D11 D62 (search for similar items in EconPapers)
Date: 2006
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