The optimal choice of internal decision‐making structures in a network industry: A multiproduct monopoly case

Focusing on the role of network compatibility effects between products of a multiproduct monopoly and on the form of consumer expectation for network sizes, we consider the optimal choice of internal decision‐making structures, that is, centralization and decentralization, and its welfare effect in a network industry. We demonstrate that if the degree of network compatibility effects is sufficiently large, the decentralized decision making is socially optimal. However, in the case of consumer ex post expectations, it is optimal for the firm's owners to choose the centralized decision making. We apply the model to the cases of price‐setting games, complementary products, and negative network externalities to examine the optimal choice of internal decision‐making structures.