Special issue on network economics: Business conduct and market structure

Abstract

This special issue of IJI0 on Network Economics focuses on issues of competition, business conduct, and market structure in network industries as well as industries where standardization is important. Despite the abundance of such industries, a systematic framework for their analysis was lacking until the middle 1980s. A survey and critical evaluation of the extensive literature on this subject that has arisen since is given in 'The Economics of Networks,' by Nicholas Economides in this issue. An important feature of networks (and of services provided over networks) is that they are typically composed of various complementary components that are combined to create composite goods (or systems) that are substitutes to each other. Thus, traditional approaches that dealt exclusively with substitutes or complements fail, and new theoretical and empirical analysis are required. The articles of this special issue accomplish this with remarkable success. A crucial feature of network goods is the fact that their value increases in the (expected) size of the network, i.e. they exhibit network externalities. This feature is also present in virtual networks comprised of products that conform to the same technical 'standard,' and are therefore 'compatible'. Three papers in this special issue by Encaoua et al., McAndrews and Rob, and Desruelle et al. discuss how network externalities arise in specific industries and analyze the resulting effects on conduct and market structure, l In 'Compatibility and Competition in Airlines: Demand Side Network Effect,' David Encaoua, Michel Moreaux, and Anne Perrot, analyse the design of departure and pricing schedules in hub-and-spoke airline networks. The results of the traditional mix-and-match model: do not directly apply since, in transportation networks each leg of a trip is a final good for some consumers, while it is a