Network effects, market structure and industry performance |
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Authors: | Rabah Amir Natalia Lazzati |
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Affiliation: | aDepartment of Economics, University of Arizona, Tucson, AZ 85721, United States;bDepartment of Economics, University of Michigan, Ann Arbor, MI 48109-1220, United States |
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Abstract: | This paper analyzes oligopolistic markets with network externalities. Exploiting a minimal complementarity structure on the model primitives that allows for pure network goods, we prove existence of non-trivial fulfilled-expectations equilibrium. We formalize the concept of industry viability, investigate its determinants, and show that it improves with more firms in the market and/or by technological progress. These results enlighten some well-known conclusions from case studies in the management strategy literature. We also characterize the effects of market structure on industry performance, which depart substantially from ordinary markets. The approach relies on lattice-theoretic methods, supplemented with basic insights from nonsmooth analysis. |
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Keywords: | JEL classification: C72 D43 L13 L14 |
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