Network Effects, Market Structure and Industry Performance

Rabah Amir () and Natalia Lazzati

No 09-27, Working Papers from NET Institute

Abstract: This paper provides a thorough analysis of oligopolistic markets with positive demand-side network externalities and perfect compatibility. The minimal structure imposed on the model primitives is such that industry output increases in a firm's rivals' total output as well as in the expected network size. This leads to a generalized equilibrium existence treatment that includes guarantees for a nontrivial equilibrium, and some insight into possible multiplicity of equilibria. We formalize the concept of industry viability and show that it is always enhanced by having more firms in the market. We also characterize the effects of market structure on industry performance, with an emphasis on departures from standard markets. As per-firm profits need not be monotonic in the number of competitors, we revisit the concept of free entry equilibrium for network industries. The approach relies on lattice-theoretic methods, which allow for a unified treatment of various general results in the literature on network goods. Several illustrative examples with closed-form solutions are also provided.

Keywords: Network effects; demand-side externalities; Cournot oligopoly; supermodularity. (search for similar items in EconPapers)
JEL-codes: C72 D43 L13 L14 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2009-09
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Network effects, market structure and industry performance (2011)
Working Paper: Network Effects, Market Structure and Industry Performance (2010)
Working Paper: Network effects, market structure and industry performance (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:net:wpaper:0927

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