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Quantifying and interpreting network effects: ‘Own-network’ is not the same as ‘firm-level’

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  • Van Hove, Leo

Abstract

This note revisits existing research on network effects in the mobile telephony industry. It highlights that – defined correctly – own-network and firm-level network externalities are two different concepts, and that mixing them up leads to inaccurate interpretations. In particular, I demonstrate that the ratio of cross- to own-network effects is an imprecise measure of compatibility because it does not accurately isolate network effects that convey market power from effects that do not. As an alternative, I propose the ratio of industry- to firm-level network effects.

Suggested Citation

  • Van Hove, Leo, 2018. "Quantifying and interpreting network effects: ‘Own-network’ is not the same as ‘firm-level’," Information Economics and Policy, Elsevier, vol. 45(C), pages 47-51.
    • Handle: RePEc:eee:iepoli:v:45:y:2018:i:c:p:47-51
    DOI: 10.1016/j.infoecopol.2018.08.002
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    References listed on IDEAS

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    1. Doganoglu, Toker & Grzybowski, Lukasz, 2007. "Estimating network effects in mobile telephony in Germany," Information Economics and Policy, Elsevier, vol. 19(1), pages 65-79, March.
    2. Mitsuru Sunada, 2008. "Network effects with quality change: an empirical analysis of the Japanese mobile telecommunications market, 1995-2001," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(8), pages 657-674.
    3. Grajek, Michal, 2010. "Estimating network effects and compatibility: Evidence from the Polish mobile market," Information Economics and Policy, Elsevier, vol. 22(2), pages 130-143, May.
    4. Madden, Gary G & Schipp, Michael & Tan, Joachim, 2007. "Mobile telephony and internet growth: impacts on consumer welfare," MPRA Paper 14555, University Library of Munich, Germany.
    5. Leo Van Hove, 2016. "Measuring the value of mobile telecommunications networks," Netnomics, Springer, vol. 17(3), pages 191-222, November.
    6. Van Hove, Leo, 2016. "Testing Metcalfe's law: Pitfalls and possibilities," Information Economics and Policy, Elsevier, vol. 37(C), pages 67-76.
    7. Stefan Behringer, 2014. "Network Effects, Spillovers and Market Structure," Manchester School, University of Manchester, vol. 82(2), pages 143-159, March.
    8. Brousseau,Eric & Curien,Nicolas (ed.), 2007. "Internet and Digital Economics," Cambridge Books, Cambridge University Press, number 9780521855914, October.
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    More about this item

    Keywords

    Network effects; Own-network; Cross-network; Firm-level; Industry-level; Mobile telephony;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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