Network Effects and Two-Sided Markets
57 Pages Posted: 29 Jul 2007
Date Written: 2007
Abstract
This paper sets out the basic economics of network effects and two-sided or multi-sided markets as relevant to antitrust and regulation. Network effects, and the related concept of two- (or multi-) sided markets, are playing an increasing role in antitrust/competition law in the communications sector, computer hardware and software, Computer Ticketing Services (CRS), Automated Teller Machines (ATMs) and credit card schemes sectors to name a few; and also in the evaluation of mergers, industry standards, market structure and competitive behaviour. The discussion begins by defining network effects and the way they alter the economics of market structure, competitive behaviour and pricing. The theory is then applied to concerns over the adoption of industry and product standards, mergers in the communications sector, and the pricing of mobile services. This is followed by an introduction to the theory of two-sided markets. This covers situations where network effects affect consumers in different groups or sides of the market brought together by a third party, such as credit card schemes. The theory of two-sided markets is developed and then applied to some features of credit card schemes. This paper is a module for the Kings College, University of London Postgraduate Diploma/Masters in Economics in Competition Law, 2006/2007.
Keywords: network effects, two-sided markets, multisided markets, credit cards
JEL Classification: L10, L41, L44, L52
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Network Externalities and Technology Adoption: Lessons from Electronic Payments
-
Network Externalities and Technology Adoption: Lessons from Electronic Payments
-
Quantifying Equilibrium Network Externalities in the Ach Banking Industry
-
Quantifying Equilibrium Network Externalities in the Ach Banking Industry
-
Identifying Formal and Informal Influence in Technology Adoption with Network Externalities
-
Coordination vs. Differentiation in a Standards War: 56k Modems
By Angelique Augereau, Shane M. Greenstein, ...
-
Heterogeneity and the Dynamics of Technology Adoption
By Stephen Ryan and Catherine E. Tucker
-
Tipping and Concentration in Markets with Indirect Network Effects
By Jean-pierre Dubé, Günter J. Hitsch, ...