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Indirect Network Effects, Trade Liberalization, and Excess Standardization

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  • Iwasa, Kazumichi
  • Kikuchi, Toru

Abstract

Indirect network effects exist when the utility of consumers is increasing in the variety of complementary software products available for use with an electronic hardware device. In this study, we examine how trade liberalization affects production structure in the presence of indirect network effects. For these purposes we construct a simple two-country model of trade with two incompatible hardware technologies. It is shown that, given that both types of hardware exist before trade liberalization, liberalization may reduce the variety of hardware technology via intensified network effects. It is also shown that, contrary to the findings of previous studies, some consumers may become worse off as the result of trade. In other words, trade liberalization,which forms the basis for a greater variety of software products, may work as a catalyst for excess hardware standardization.

Suggested Citation

  • Iwasa, Kazumichi & Kikuchi, Toru, 2007. "Indirect Network Effects, Trade Liberalization, and Excess Standardization," MPRA Paper 4399, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:4399
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    References listed on IDEAS

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    More about this item

    Keywords

    Indirect Network Effects; Trade Liberalization;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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