Networks, Network Externalities and Market Segmentation

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

No 124, Working papers from Centre for Development Economics, Delhi School of Economics

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.

Keywords: network structure; network externalities; price competition; market segmentation. (search for similar items in EconPapers)
JEL-codes: D7 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2004-04
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