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Firm value in emerging network industries

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  • Schneider, Lorenz

Abstract

This paper examines emerging industries that exhibit positive network effects. We put forward a dynamic model in which two technologies compete to be the standard. The model provides a quantitative method for the valuation of firms. We use the model to examine the relationship between network effects, consumer heterogeneity, and prices. We show that the firm value depends strongly on the particular choice of the network strength function. We compare three types of such functions, identify shortcomings of traditionally used ones, and propose a more realistic one.

Suggested Citation

  • Schneider, Lorenz, 2014. "Firm value in emerging network industries," Information Economics and Policy, Elsevier, vol. 26(C), pages 75-87.
    • Handle: RePEc:eee:iepoli:v:26:y:2014:i:c:p:75-87
    DOI: 10.1016/j.infoecopol.2014.01.001
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    References listed on IDEAS

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    More about this item

    Keywords

    Network industries; Network effects; Market expectations; Firm valuation; Monte Carlo simulation;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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