The Economics of Networks

37 Pages Posted: 23 Aug 1995

See all articles by Nicholas Economides

Nicholas Economides

New York University - Leonard N. Stern School of Business - Department of Economics

Date Written: September 1995

Abstract

We analyze the salient features of networks and point out the similarities between the economic structure of networks and the structure of vertically related industries. The analysis focuses on positive consumption and production externalities, commonly called network externalities. We discuss their sources and their effects on pricing and market structure. We distinguish between results that do not depend on the underlying industry microstructure (the macro approach) and those that do (the micro approach). We analyze the issues of compatibility, coordination to technical standards, interconnection and interoperability, and their effects on pricing and quality of services and on the value of network links in various ownership structures. We also briefly discuss the issue of interconnection fees for bottleneck.

Keywords: networks, compatibility, strategic choice

JEL Classification: D62, D4, E3

Suggested Citation

Economides, Nicholas, The Economics of Networks (September 1995). NYU Working Paper No. EC-94-24, Available at SSRN: https://ssrn.com/abstract=1719 or http://dx.doi.org/10.2139/ssrn.1719

Nicholas Economides (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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HOME PAGE: http://www.stern.nyu.edu/networks/

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