Presence Of Network Externalities Research Articles

Consumption network externalities, corporate social responsibility, and conflicting interests: Cournot vs. Bertrand competition

AbstractIn this paper, we will delineate the nexus of consumption network externalities, corporate social responsibility (CSR), and conflicting interest issues under Cournot and Bertrand competition. We find that a stronger degree of network externalities may bring conflicting interests between firms and the consumers, benefiting firms while hurting consumers. The degree of conflicting interests caused by network externalities is consistent in Cournot and Bertrand competition. Furthermore, when firms do CSR activities, the presence of network externalities may alleviate the conflicting interests caused by CSR activities and bring a “win–win” outcome between firms and consumers in two competition modes.

Strategic analysis of e-book pricing models in the presence of network externalities

Strategic analysis of e-book pricing models in the presence of network externalities

The impact of network externalities and altruistic preferences on carbon emission reduction of low carbon supply chain

This paper explores the manufacturer's carbon emission reduction in the presence of network externalities and altruistic preferences. Existing literature mainly analyzes the impact of government regulations and firms' behavior characteristics on manufacturers' decisions, while little literature investigates the role of network externalities and altruistic preferences in promoting carbon emission reduction of manufacturers. Our results show that network externalities and altruistic preferences are conducive to improving manufacturers' profits and carbon emission reduction levels. However, we find that manufacturers' carbon emission reductions are more likely to be optimal without network externalities and altruistic preferences when the cost of low-carbon technologies is low, and consumer preferences are high. Interestingly, when the low-carbon technologies cost is high, the combined effect of network externalities and altruistic preferences is more favorable for manufacturers to implement carbon emission reductions. However, when the cost of low-carbon technologies is moderate, we find that the combined effect of network externalities and retailers' altruistic preferences does not always increase the level of carbon emission reductions. In addition, we also find that network externalities or altruistic preferences enhance manufacturers' ability to afford the costs of low-carbon technologies, which implies that manufacturers are more inclined to reduce carbon emissions compared to scenarios without network externalities and altruistic preferences.

Network externalities and endogenous timing in managerial firms

We investigate the choice of endogenous timing in the presence of network externalities under Bertrand competition. Contrary to the results of sequentiality in equilibrium, we demonstrate that when managers are being delegated both the market and timing decision, there exists a unique simultaneous move in equilibrium regardless of network externalities. However, when the choice of timing remains in the owners' hands, if the network externalities are weak (strong), it involves sequential (simultaneous) equilibrium. Consequently, from the viewpoint of social welfare and consumer surplus, Pareto superiority can be obtained endogenously when the strength of network externalities is strong.

Strategic delegation and network externalities under export rivalry market

AbstractIn the presence of network externalities, this study examines the endogenous delegation structure in an export rivalry market with import tariff under Bertrand competition. Contrast to previous works, we show that (i) with strong (weak) network externalities, choosing delegation for exporters is a dominant strategy, which implies the managerial delegation for output expansion (restriction) is socially desirable; (ii) with intermediate network externalities, the exporters choose no delegation in equilibrium; (iii) compared to no delegation, a smaller import tariff further increases both exporters incentives, consumer surplus and social welfare to choose delegation for output expansion unless the strength of network externalities is small; and (iv) hence, two contrasting prisoner’s dilemmas occur in the Bertrand competition when the network effect is medium‐sized.

Social efficiency of entry: Implications of network externalities

AbstractWe examine the welfare effects of entry in the presence of network externalities. We show that if network goods are fully incompatible, entry is socially insufficient as long as the entry cost is high, the goods are sufficiently differentiated, and the degree of network externality is low. Further, we show that as the degree of compatibility between the network goods increases, insufficient entry becomes more likely. Our findings provide policy guidelines for anticompetitive and procompetitive entry regulations.

Does an incumbent monopolist have an incentive to invite new entry through granting a free patent license?

We examine whether an incumbent monopolist has an incentive to invite a new entry. In particular, we demonstrate the condition of a profit-raising entry effect in the presence of network externalities. Here the incumbent monopolist grants a free patent license for a perfectly compatible product for a new firm when it can choose the level of compatibility.

Collusion with Network Externalities in Price vs. Quantity Competition

In the presence of network externalities, we compare the stability of collusion under Bertrand and Cournot duopoly with differentiated products. Contrast to previous studies, we show that (i) firms have stronger incentive to collude under Bertrand competition than under Cournot competition in the sense of wide range of network externalities; (ii) collusion in prices (quantities) is more stable than in quantities (prices) if network externalities is strong (weak).

A Note on Strategic Delegation and Network Externalities Under Export Rivalry Market

In the presence of network externalities, this study examines the endogenous delegation structure in an export rivalry market with import tariff under Bertrand competition. Contrast to previous works, we show that (i) with strong (weak) network externalities, choosing delegation for exporters is a dominant strategy, which implies the managerial delegation for output {\it expansion (restriction)} is socially desirable; (ii) with intermediate network externalities, the exporters choose no delegation in equilibrium; (iii) compared to no delegation, a smaller import tariff further increases both exporters incentives to choose delegation for output expansion unless the strength of network externalities is small.

Price and quantity competition with network externalities: Endogenous choice of strategic variables

AbstractWe consider the endogenous choice of strategic variable (price or quantity) in a duopoly market for differentiated goods in the presence of network externalities. We show that if the rival goods are substitutes in demand, but the degree of network compatibility is large enough to outweigh the substitution effects, each firm chooses price as its strategic variable. This finding is a rare exception to the usual result that if the goods are substitutes, each firm would choose quantity as its strategic variable. Moreover, we show that two non‐standard results hold when the above condition is satisfied and the efficiency difference between the two firms is large. First, the price of the less efficient firm is higher under price competition than under quantity competition. Second, in a situation where one firm sets quantity and the other firm sets price, the profit of the more efficient firm is higher when it is the quantity‐setter than when it is the price‐setter, and the opposite is true for the less efficient firm.

Note on the excess entry theorem in the presence of network externalities

Focusing on the type of consumer expectations, i.e., passive and responsive expectations, we reconsider the excess entry theorem in the case of Cournot oligopoly with network externalities. We demonstrate that whether the number of firms under free entry is socially excessive or insufficient depends on the type of consumer expectations and the degree of network externalities. That is, in the case of passive expectations, if the degree of network externalities is sufficiently large (small), the number of firms under free entry is socially insufficient (excessive), based on the second-best criteria. However, in the case of responsive expectations, the number of firms under free entry is socially excessive, based on the second-best criteria.

Strategic analysis of e-book pricing models in the presence of network externalities

Strategic analysis of e-book pricing models in the presence of network externalities

Horizontal Mergers in the Presence of Network Externalities

Evaluating network effects and two-sidedness is critical for merger control in the digital economy. To examine the impact of network effects on the welfare properties of mergers, this study analyzes a model of multiproduct-firm oligopoly with firm-level network externalities using an aggregative-games approach. The analysis shows that network externalities increase both the consumer benefits of mergers through network expansion and the cost of accompanying market power. The former justifies small mergers, but the latter makes mergers between dominant firms more likely to hurt consumers. An extension to two-sided markets indicates that an increase in the size of the merged entity on one side can benefit the consumers on the other side even without the direct benefits of network expansion, because of the changes in the platform's cross-subsidization incentives. Further, this study illustrates how the pre-merger prices and market shares of merging parties can predict the effects of mergers on consumers in two-sided markets.

Versioning Goods and Joint Purchases with Network Externality

This paper analyses the monopolist's production and pricing decisions on two vertically diffe-rentiated versions of a product in the presence of network externality. We show that offering only the higher-quality version of the product is the optimal strategy when negative externality exists and the utility from joint purchase is not large. If both versions are provided, the monopolist will charge a monopoly price for each version to induce separate purchases if these two versions are too close substitutes. Moreover, in the equilibrium with joint purchases, with an increase in externality or the utility from a joint purchase, the prices of both versions increase. In addition, with an in-crease in network externality, the equilibrium region for separate purchases first increases and then decreases.

Network Externalities and Endogenous Timing in Managerial Firms

We investigate the choice of endogenous timing by managerial firms in the presence of network externalities under Bertrand competition. Contrast to the results of sequentiality in equilibrium, we demonstrate that when managers are being delegated both the market and timing decision, there exists a unique simultaneous move in equilibrium regardless of network externalities. However, when the choice of timing remains in the owners’ hands, if the network externalities are weak, it involves one owner of firm producing as a leader and the other owner of firm as a follower while there exists a unique simultaneous move in equilibrium if the network externalities are strong. Thus, the strength of network externalities plays an important role in both firms’ choice of roles and consensus between owner and manager. Consequently, from the viewpoint of social welfare and consumer surplus, Pareto superiority can be obtained endogenously when the strength of network externalities is strong under either consumers’ fulfilled or rational expectation.

Boundaries of the Firm with Network Externalities

We examine that each manufacturer decides on whether or not to delegate to its retailer in the presence of network externalities. In this paper, we show a trade-off between competition and network size. Vertical separation has the advantage of softening a retailing competition, but has the disadvantage of downsizing a network size. On the other hand, vertical integration has advantage of increasing the network size, but has disadvantage of intensifying the retailing competition. In these circumstances, network effect and competition play important roles in equilibrium. Our conclusion differs sharply from the conventional results in two points. One is that it is a dominant strategy for each manufacturer to choose vertical integration if competition effect is overwhelmed by network effect. The other is that if network effect is strong, profits, consumer surplus, and social welfare are higher under vertical integration than separation.

Sequential product positioning in the presence of an asymmetric network externality intensity

In this study, we analyze the sequential decisions on product positioning of two firms in the presence of network externalities. One commonly accepted phenomena in a market where a network externality arises is the first‐mover advantage, in which the first entrant into a market can earn a higher profit than later entrants. However, in some recent online services markets, we see that the second mover earns a higher profit than the first mover. This occurs because the second mover strengthens its variety of available functions and services markedly, thereby facilitating consumers' work and communication with its main product, which we call network externality intensity. Based on this observation, we analyze sequential positioning in Hotelling's framework by incorporating an asymmetric network externality intensity between firms. We show that unlike the results of previous related studies, both first‐ and second‐mover advantages can appear in the equilibrium depending on the relationship of the network externality intensity between firms; further, they do not change monotonically with the level of network externality intensity.

Market Power and Mergers in Multi-Sided Markets

Due to the presence of network externalities in multi-sided markets, evaluating the performance of a platform is more difficult than for a firm in a traditional market. In this paper I develop methods for determining platform marginal costs, market power, and post-merger price predictions. I show that with positive network externalities, traditional methods will underestimate unobserved marginal costs and will overstate both platform market power and post-merger pricing predictions. I also find that if a multi-platform seller partially integrates their networks, by allowing network compatibility across its multiple platforms or through backward compatibility with a previous generation, then a cannibalization effect can occur where some (potentially all) prices decrease relative to their unintegrated counterpart. Finally, I highlight the main results in an illustration on the video game market.

Finding the right employee online: determinants of internet recruitment in Spanish firms

ABSTRACTThis paper analyses the variation of recruitment strategies in Spanish firms, with special emphasis on the Internet. Using data from the Spanish Labour Trends Survey for the period 2001–2011, we study the factors influencing the decision to use online recruitment and explore the differences between Internet and eight traditional recruitment channels. Our results show that the adoption of the Internet monotonically increases over the sample period, when Internet becomes more universal and even in periods with excess of applicants. Large firms operating in information-intensive activities, and located in regions more developed and with better infrastructures are more likely to search for new employees online. We also find that Internet and traditional recruitment methods follow different patterns, especially when using personal referrals and public employment services. Our results suggest the presence of network externalities derived from the increase number of compatible online job seekers.

The effect of competition from open source software on the quality of proprietary software in the presence of network externalities

Purpose: A growing number of open source software emerges in many segments of the software market. In addition, software products usually exhibit network externalities. The purpose of this paper is to study the impact of open source software on the quality choices of proprietary software vendors when the market presents positive network externalities. Design/methodology: To analyze how open source software affects the optimal quality of proprietary software, this paper constructs two vertical differentiation models: the basic model considers proprietary software monopolizing the market, and its extended one considers proprietary software competing with open source substitute. Findings: This paper mainly finds that the presence of open source software does not necessarily lead to the quality of proprietary software decreases (or increases). The network externalities and compatibility between open source and proprietary software may change the impact of open source software on the quality of proprietary software and may affect the quality choices of proprietary software vendors. Originality/value: The main contribution of this paper is to examine the effect of open source software on the quality choices for proprietary software vendors in software markets exhibiting positive network externalities.