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Do Consumers Gain or Lose when Network Externalities Become Stronger?

Author

Listed:
  • Chung-Hui Chou

    (I-Shou University)

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.

Suggested Citation

  • Chung-Hui Chou, 2020. "Do Consumers Gain or Lose when Network Externalities Become Stronger?," Economics Bulletin, AccessEcon, vol. 40(3), pages 2193-2200.
    • Handle: RePEc:ebl:ecbull:eb-20-00598
    as

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    References listed on IDEAS

    as
    1. Chou, Chien-fu & Shy, Oz, 1990. "Network effects without network externalities," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 259-270, June.
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    More about this item

    Keywords

    consumers' surplus; fat-cat strategy; network externalities; partial compatibility; sales delegation;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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