IDEAS home Printed from https://ideas.repec.org/p/red/sed007/759.html
   My bibliography  Save this paper

Network Competition with Local Network

Author

Listed:
  • Oystein Fjeldstad

    (Norwegian School of Management)

  • Espen R. Moen
  • Christian Riis

Abstract

Local network externalities are present when the network externalities associated with entering a certain network depends not only on the total number of agents in the network, but on the identity of the agents in the network. We explore the consequences of local network externalities within a framework where two networks compete on the Hotelling circle. We first show that local network externalities, in contrast to global network externalities, do not sharpen competition. Then we show that the equilbrium suffers from composition inefficiency, due to a coordination failure. We also study the effects of the systematic difference between the marginal and the average consumer that the local network externalities create. The consequences are too little traffic within the network, and too much interconnection between the networks.

Suggested Citation

  • Oystein Fjeldstad & Espen R. Moen & Christian Riis, 2007. "Network Competition with Local Network," 2007 Meeting Papers 759, Society for Economic Dynamics.
    • Handle: RePEc:red:sed007:759
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2007/paper_759.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring.
    2. Economides, Nicholas, 2001. "The impact of the Internet on financial markets," Journal of Financial Transformation, Capco Institute, vol. 1, pages 8-13.
    3. Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-131, March.
    4. Granovetter, Mark, 1995. "Coase Revisited: Business Groups in the Modern Economy," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 4(1), pages 93-130.
    5. Katz, Michael L & Shapiro, Carl, 1992. "Product Introduction with Network Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 55-83, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jullien, Bruno, 2001. "Competing with Network Externalities and Price Discrimination," CEPR Discussion Papers 2883, C.E.P.R. Discussion Papers.
    2. Song, Yang & Berger, Ron & Yosipof, Abraham & Barnes, Bradley R., 2019. "Mining and investigating the factors influencing crowdfunding success," Technological Forecasting and Social Change, Elsevier, vol. 148(C).
    3. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    4. Schade, Sven & Buxmann, Peter, 2005. "A Prototype to Analyse and Support Standardization Decisions," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35795, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    5. A. Bassanini & G. Dosi, 1998. "Competing Technologies, International Diffusion and the Rate of Convergence to a Stable Market Structure," Working Papers ir98012, International Institute for Applied Systems Analysis.
    6. Michihiro, Kandori & Rob, Rafael, 1998. "Bandwagon Effects and Long Run Technology Choice," Games and Economic Behavior, Elsevier, vol. 22(1), pages 30-60, January.
    7. Liangjie Zhao & Wenqi Duan, 2014. "Simulating the Evolution of Market Shares: The Effects of Customer Learning and Local Network Externalities," Computational Economics, Springer;Society for Computational Economics, vol. 43(1), pages 53-70, January.
    8. Brem, Alexander & Nylund, Petra A. & Schuster, Gerd, 2016. "Innovation and de facto standardization: The influence of dominant design on innovative performance, radical innovation, and process innovation," Technovation, Elsevier, vol. 50, pages 79-88.
    9. Heli Koski & Tobias Kretschmer, 2004. "Survey on Competing in Network Industries: Firm Strategies, Market Outcomes, and Policy Implications," Journal of Industry, Competition and Trade, Springer, vol. 4(1), pages 5-31, March.
    10. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
    11. Jeho Lee & Jaeyong Song & Jae-Suk Yang, 2016. "Network structure effects on incumbency advantage," Strategic Management Journal, Wiley Blackwell, vol. 37(8), pages 1632-1648, August.
    12. Christ, Julian P. & Slowak, André P., 2009. "Why blu-ray vs. HD-DVD ist not VHS vs. Betamax: The co-evolution of standard-setting consortia," FZID Discussion Papers 05-2009, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    13. Belleflamme, Paul, 1998. "Adoption of network technologies in oligopolies," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 415-444, July.
    14. Ewald Scherm & Christian Maaß, 2006. "Zum Stellenwert der Netzwerkökonomik in der Strategie-/Marketingforschung —Eine Analyse empirischer Untersuchungen," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 17(1), pages 27-46, March.
    15. Narayanan, V.K. & Chen, Tianxu, 2012. "Research on technology standards: Accomplishment and challenges," Research Policy, Elsevier, vol. 41(8), pages 1375-1406.
    16. Frederick R. Warren-Boulton & Kenneth C. Baseman & Glenn A. Woroch, 1994. "The Economics of Intellectual Property Protection for Software: The Proper Role for Copyright," Industrial Organization 9411004, University Library of Munich, Germany.
    17. Suarez, Fernando F., 2004. "Battles for technological dominance: an integrative framework," Research Policy, Elsevier, vol. 33(2), pages 271-286, March.
    18. Netsanet Haile & Jorn Altmann, 2015. "Value Creation in Software Service Platforms," TEMEP Discussion Papers 2015123, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Sep 2015.
    19. Paul W.J. de Bijl & Sanjeev Goyal, 2002. "Market Integration and Technological Change," Netnomics, Springer, vol. 4(1), pages 19-37, March.
    20. Zohal Hessami, 2016. "How Do Voters React to Complex Choices in a Direct Democracy? Evidence from Switzerland," Kyklos, Wiley Blackwell, vol. 69(2), pages 263-293, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed007:759. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.