TWO‐SIDED MARKETS WITH PECUNIARY AND PARTICIPATION EXTERNALITIES*

The existing literature on two‐sided markets addresses participation externalities, but it has neglected pecuniary externalities between platforms. In this paper we build a model that incorporates both externalities. In our set‐up, differentiated platforms compete in advertising levels and offer consumers a service free of charge that is financed through advertising. We show that advertising can exhibit the properties of a strategic substitute or complement. Surprisingly, we find that platform profits can increase with market entry and that there are cases in which the level of advertising rises with entry. We also consider endogenous entry and provide a welfare analysis.     

The Solar Shakeout – Capital Market Reactions to Bankruptcy Announcements in the German Solar Industry

This paper investigates how bankruptcy announcements in the German solar industry affect the stock market returns of announcing firms and their competitors. We show that German solar firms experience negative capital market reactions to their own bankruptcy announcements and to the announcements of their competitors. Cross-sectional analysis reveals that these negative information externalities are magnified by higher leverage. Further analysis also indicates that these negative information externalities are valuable predictors in short-term default probability models.     

The impact of technology advancement strategies on consumers' patronage decisions

Among the many factors that encourage return patronage of incumbent technology, two that have received scholarly attention in other contexts are network externalities and switching costs. However, the roles of network externalities and switching costs in encouraging return patronage of technology have not yet been subjected to rigorous empirical testing. Furthermore, no examination has been conducted of the degree to which these factors play a role in the success or failure of corporate technology advancement strategies designed to encourage return patronage. In this context, we propose a systematic framework to explore the nature of the links between technology advancement strategies and consumer technology patronage via network externalities and switching costs. Based on consumer survey data from South Korea, we find empirical support for the link between technology advancement strategies and consumers' technology patronage. Specifically, both network externalities and switching costs are found to be positively associated with technology patronage. According to this study, consumers value compatibility because it gives them access to a larger network. Further, compatibility strategy is associated with the costs involved in switching away from incumbent technology because of an abundant or varied supply of complementary goods. The results also show that preannouncement is a key marketing strategy to achieve favorable expectations and to retain the patronage of current technology users. © 2002 Elsevier Science Inc. All rights reserved.     

Types of firms generating network externalities and MNCs' co‐location decisions

This study identifies and examines sources of network externalities that influence MNCs to agglomerate their foreign operations in specific regions. Using data for Korean firms that invested in China, this study found that network externalities were sensitive to the types of firms constituting a regional network. It also found stronger network externalities within firms than across firms, from firms of the same nationality than from those of different nationalities, and from firms in the same industry than from those of different industries. As we defined the types of firms more precisely, distinctive curvilinear relationships between network externalities and the likelihood of co‐location emerged. Copyright © 2005 John Wiley & Sons, Ltd.     

公共服务、外部性与工业集聚

本文在新经济地理学框架内，通过引入政府部门构建了一个空间均衡模型，理论研究表明，公共服务支出的提高可以促进工业集聚，并且受偏好的影响存在外部性，而集聚优势则通过循环累积因果关系进一步扩大。通过使用1999～2014年中国省际面板数据，检验了相关变量对工业集聚所产生的外部性影响，研究发现：公共服务、市场潜能均与工业集聚呈正相关，随着工业集聚程度的提高，公共服务对集聚的影响是递减的，反映了低集聚地区公共服务支出不足的现状，而市场潜能对集聚的影响存在一个上升的趋势。     

COLLUSION IN THE PRESENCE OF EXTERNALITIES*

I examine collusive bidder behavior in auctions with negative externalities and show that the optimal bidding scheme exhibits only partial rigidity. Because of externalities, a cartel not only has incentive to maximize gains from trade but also to minimize the probability of sales. I identify the tension between the two incentives and show that the more rigid the bidding scheme, the higher the possibility of sales. As the extent of externalities increases, the cartel finds it more important to keep a low probability of sales than to minimize payment to the seller. This results in a partially‐rigid optimal collusive bidding scheme.     

A MULTI‐TASK PRINCIPAL‐AGENT APPROACH TO ORGANIZATIONAL FORM*

This paper studies the choice of organizational forms in a multi‐task principal‐agent model. We compare a functional organization in which the firm is organized into functional departments such as marketing and R&D to a product‐based organization in which the firm is organized into product lines. Managers' compensation can be based on noisy measures of product‐line profits. Measures of a functional area's contribution to total profits are not available, however. This effect favors the product organization. However, if there are significant asymmetries between functional area contributions to organizational success and cross‐product externalities within functions, organizing along functional lines may dominate the product organization. The functional organization can also dominate when a function is characterized by strong externalities while the other is not.     

Percentage Rent in Retail Leasing: The Alignment of Landlord–Tenant Interests

Only retail tenants pay their landlord a percentage of revenue in addition to the traditional fixed rent. The latter has often been shown to vary widely across stores–inverse to the sales externalities generated by the store. This paper demonstrates that revenue percentages vary widely as well, and positively with fixed rent (sales externalities). It is then argued that existing theoretical explanations for percentage rent (involving generic risk sharing and tenant effort issues) are not specific to the retail sector and apply to all tenant–landlord relationships. Instead, a model is proposed where percentage rent gives the correct incentive to landlords–rather than to tenants. In this model, percentage rent ensures that with sales externalities, landlords do not act opportunistically and always have the interest of existing tenants in mind when expanding, altering or reletting space in a shopping center.     

Vertical Industry Linkages: Sources of Productivity Gains and Cumulative Causation?

In this paper we analyse how vertical industry linkages maywork as channels for externalities. We test for activity based externalities stemming from outputgrowth and output level in vertically linked industries. Moreover, by comparing resultson localised inter-industry externalities as well as significance of local sales linkages,we try to reveal the strength of self-reinforcing agglomeration forces. A number of Norwegianmaritime transport and services sectors are analysed. The results are promising inthe sense that the model allows us to distinguish empirically between different sources ofexternalities, and unveils the extent to which vertical industry linkages give rise to self-reinforcingagglomeration.     

Experimental Evidence on Product Adoption in the Presence of Network Externalities

The benefits accruing to a purchaser of a product due to the existing base of consumers of the same or compatible products are known as network externalities. This paper studies Katz and Shapiro's (1986) model of network externalities in an experimental setting. Two sellers choose prices for competing technologies sold to two groups of four buyers purchasing sequentially in two stages. The results are qualitatively consistent with Katz and Shapiro's equilibrium predictions. In certain sessions over three-quarters of first stage buyers purchase the more expensive technology anticipating that later arriving buyers will also buy this technology. In periods where a strong network has been established for a technology in the first stage, over 80 percent of second stage buyers buy that technology, even though in most cases it is priced higher. The data, however, differ from the point predictions of the model.     

Biases in optimal pricing with network externalities

Access and usage externalities affect consumer welfare and behavior in regulated communications networks, but nobody has ever adjusted prices to allow for externalities with a binding revenue constraint. If we fail to account for network externalities when we set (profit-constrained) welfare-maximizing access and usage prices, are the resulting prices too high or too low? This article demonstrates that the outcome depends upon what size of customer is likely to exit the network. It determines ranges where the access price increases and the usage price decreases, as well as the reverse.     

Changing competitive dynamics in network industries: An exploration of sun microsystems' open systems strategy

An integral part of competition is to deny rivals access to proprietary technical knowledge. Yet, Sun Microsystems provides rivals easy access to its technical knowledge and encourages them to enter its workstation market. This paper employs theoretical insights on technological systems and network externalities to understand Sun's open systems strategy. The paper also explores the changing nature of competition in network industries–industries characterized by network externalities and built around technological systems.     

Agglomeration effects and performance: a test of the Texas lodging industry

While competition decreases rents for firms, the presence of competitors may create benefits. Competitors that agglomerate, that are physically proximate, may create externalities—production efficiencies or heightened demand that increases rents. When such externalities exist, then who gains from and who contributes to them? We examine how other competitors' traits affect performance in Texas's lodging industry. In rural markets, we find that chain hotels and larger hotels contribute to positive externalities. While expecting those hotels similar to the establishments creating these externalities to gain, we find the opposite. Independent hotels and smaller hotels gain the most. Interestingly, some establishments are harmed. Copyright © 2001 John Wiley & Sons, Ltd.     

The Estimation of a Cusp Model to Describe the Adoption of Word for Windows*

This article revisits earlier work in this journal by Paul Herbig (1991) that proposed a catastrophe model of industrial product adoption under certain conditions. Catastrophe models are useful for modeling situations where organizations can exhibit both smooth and abrupt adoption behavior. It extends Herbig's work by focusing on organizations' adoption of new products when network externalities are an important part of the decision process, and it presents an empirical estimation of the model. Network externalities occur when firms do not want to adopt a new innovation or product unless other firms do. The reason is that they do not want to end up with an innovation that ends up not being a standard of some sort. Mistakes of this nature can be costly as the firm must invest twice and loses time relative to competitors who have not made such a mistake. However, when such externalities exist, for example with regard to technological adoptions, then normal diffusion gives way to sudden discontinuous shifts as all firms seemingly act together an move to a new technology. Since, technology is an area where the authors expect network externalities to exist, that is the focus of this article. The specific application is developed from two sets of panel data on the organizational adoptions of Microsoft's (MS) Word for Windows software by organizations that previously were using either Word for DOS or Word for Macintosh (Mac). The theoretical framework for the analysis is based on work in the economics literature on network externalities. However, the organization and new product development catastrophe model comes primarily from Herbig (1991) . The article focuses on an area of organizational adoption where relatively little empirical research has been done, namely organizational adoption “for use.” Longitudinal data provided by Techtel Corporation is used to develop the estimations. Results of the empirical analysis are consistent with the theoretical framework suggested in Herbig's article and in those found in economics and catastrophe theory literatures. This lends clear support to the idea that organizations will adopt a bandwagon‐type behavior when network externalities are present. It further suggests that in such markets, the standard S‐shaped diffusion curve is not an appropriate model for examining organizational behavior. From a managerial perspective, it means that buyers and sellers may face nonstandard diffusion curves. Instead of S‐shaped curves, the actual curves have a break or rift where sales end, and there is a sudden shift to a new product that is relatively high very early on. Clearly, for new product development (NPD), it suggest that organizations' “for‐use” purchases may be similar to regular consumers and may change rapidly from one product to another almost instantly, as in the case of the switch from vinyl records to compact discs (CDs). From an old product seller's viewpoint, the market is here today and gone tomorrow, while for the new seller it is a sudden deluge of sales requests. To put it in more everyday terms, sudden changes in adoption behavior are a September 11‐type experience for the market. It is the day the world changes.     

A retrospective study on the regional benefits and spillover effects of high-speed broadband networks: Evidence from German counties

This study aims to assess the economic benefits of high-speed broadband within and across neighboring counties in Germany. Utilizing a balanced panel dataset of 401 German counties with data from 2010 to 2015 as well as different panel estimation techniques, we find that an increase in average broadband speed has a significantly positive effect on regional GDP in the average German county. Furthermore, we find that broadband deployment in German counties induces not only substantial economic benefits in terms of direct effects within counties but also positive regional externalities across counties. According to our estimation results, an increase in average bandwidth speed by one unit (1 Mbit/s) induces a rise in regional GDP of 0.18%. This effect is almost doubled if we also take regional externalities into account (0.31%). Moreover, we find that regional agglomeraton effects are of particular relevance for rural counties. Our cost-benefit analysis of subsidies based on conservative estimates suggests efficiency gains, as the total economic per capita benefits (€164) of subsidy programs to encourage broadband expansion exceeded their associated per capita costs (€114).     

用户基础、网络分享与企业边界决定

互联网的出现和应用带来新经济的迅速发展,互联网应用于企业的一个显著特征是使相关企业及其产品获得某种程度的网络外部性。网络外部性的存在有可能改变产品的用户基础或者再造企业采购、工艺流程以及强化营销服务网络,进而使企业的现有边界发生动态调整。基于用户基础的模型表明,网络效应的存在,扩大了两企业进行合作的空间,因此,在某种程度上扩大了企业的横向边界。而引入网络分享因素后,在一定条件下某些上游企业将有积极性创造新的营销系统,从而导致了企业纵向边界的调整变化。     

Incorporating Network Externalities into the Technology Acceptance Model*

Research on network externalities has identified a number of product categories in which the market performance of an innovation (e.g., unit sales and revenues) is an increasing function of that innovation's installed base and the availability of complementary products. Innovation scholars have attributed these findings to the positive impact of network externality variables on consumer perceptions of innovation attributes. This paper provides the first empirical examination of these perceptual linkages by extending the Technology Acceptance Model to include consumer perceptions of network externality variables. The authors hypothesize that, when direct and indirect network externalities exist, consumer purchase intentions and consumer perceptions of an innovation's usefulness and ease of use will positively reflect perceptions of installed base size and the availability of complementary products. To test this reasoning, the authors developed new measures of consumer perceptions of network externality variables. These measures were incorporated into a survey that explored the attitudes in Japan of potential adopters toward digital music (DM) players at an early stage in the product life cycle. Findings reveal a direct positive relationship between ease of use and the perceived availability of digital music. The authors also find positive and significant relationships between both purchase intention and perceived usefulness and (1) the perceived size of the DM player installed base and (2) the perceived availability of digital music. An application of the Baron‐Kenny test for mediating variables reveals that (1) ease of use partially mediates the relationship between the perceived availability of digital music and perceived usefulness and (2) perceived usefulness partially mediates the relationship between the perceived availability of digital music and purchase intention. The research has important implications for future research on new product adoption and for the management of innovations that involve network externalities. The conceptual model provides a framework for testing alternative explanations of observed variations in the impact of network externalities within and across product categories. The empirical analysis provides guidance for managers who wish to manage the impact of network externalities on adoption. In addition to stimulating the size of the installed base and the variety of complementary products, executives must also manage consumer awareness of network externality variables and consumer understanding of the relationship between those variables and innovation attributes. Finally, traditional adoption models link consumer adoption decisions to perceptions of innovation attributes. The findings provided here imply that predictive accuracy of these models can be improved by including consumer perceptions of network externality variables.     

Payoff-Improving Competition: Games with Negative Externalities

We demonstrate that more intense competition in games with production and negative externalities may be payoff-improving, and therefore welcomed by incumbents. In games that feature equilibria with strategic complements, increased competition may give rise to a new equilibrium where aggregate effort is lower, and the resulting reduced levels of externalities ultimately leaves all players better off. This setting applies to models of Cournot oligopoly, of common pool resources, and contests with endogenous prizes.

     

The Impact of Market Structure and Learning on the Tradeoff between R&D Competition and Cooperation

This paper compares R&D competition and cooperation when firms can devote resources to a ‘safe’ investment or a risky R&D investment. When the discovery of a new product creates positive externalities on non‐discovering firms, equilibrium investment flow, ex ante investment, and welfare under R&D competition are less than or equal to what they are under research cooperation. With negative externalities, R&D cooperation results in the same or lower ex ante investment than under R&D competition, and social welfare may also be less. Our results have relevance for empirical studies of the impact of R&D cooperation on R&D outcomes.     

Land use Controls: The Case of Zoning in the Vancouver Area

This paper explores the relationship between rezoning and changes in observed property values and the ability of zoning to mitigate externalities. Three separate methodologies are used in three locations in metropolitan Vancouver to examine these issues. Our results imply that rezoning does not necessarily lead to changes in land use and value. Further, no evidence was found to support the assertion that there are significant negative externalities due to incompatible land uses in residential property markets. Based on these results, we feel it is reasonable to question the continued use of zoning in developed areas of urban regions.