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The effect of network externalities on entry in a Spence-Dixit model

Domenico Buccella () and Luciano Fanti ()

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: This paper studies the effect of consumption externalities on entry decision in network industries in a Spence-Dixit entry model. It is shown that, when entry is considered, the presence of network externalities raises the sunk cost threshold that blocks the potential competitor's entry. However, the difference between the thresholds to deter and accommodate entry enlarges: entry is relatively "less blockaded" but "more deterred" than in a standard goods industry.

Keywords: Network externalities, Entry, Deterrence; Monopoly; Duopoly. (search for similar items in EconPapers)
JEL-codes: L13 L20 L21 (search for similar items in EconPapers)
Date: 2016-01-01
New Economics Papers: this item is included in nep-com and nep-reg
Note: ISSN 2039-1854
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Persistent link: https://EconPapers.repec.org/RePEc:pie:dsedps:2016/212

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